Exam 27: Short Run Decision Analysis

The common costs shared by two or more products before they are split off are called joint costs.

Anderson Co. makes and uses 5,000 components each year in its manufacturing operations. An outside supplier has offered to supply the components to Anderson at $66 per unit. Anderson's production costs are as follows: If Anderson accepts the order, $8 of fixed overhead per unit will be eliminated. If the offer is accepted, operating income will

Which of the following techniques is most useful for a special order decision?

In a proposal to increase the production of clock radios, the sales managers of Rinaldo Electronics reported the total additional cost required to meet the increased production level. The increase in total cost is known as the

If the incremental costs are greater than the incremental revenue, the product should not be processed further and sold at the split-off point.

California Chemical Co. produces several chemical compounds. Each compound can be sold at the split-off point or processed further. The following results apply to May: Compound Fales Value at Split-off Casts af Additional Sales Value After Paint Pracessine Additional Pracassine ChemI \ 59,600 \ 7,300 \ 74,400 Chem II 70,70] 17,500 82,600 Chem III 46,700 6,200 55,500 After determining which products should be sold at the split-off point and which should be processed further, the total revenue provided by these three products would be

Lispell Co. manufactures in-line skates that sell for $128 a pair. The company is currently operating at capacity, 2,000 pairs. A special order from a foreign distributor for 400 pairs of skates at $120 a pair has just been received. In order to accept this order, Lispell Co. would have to give up 400 pairs of its regular sales. However, there would be no sales commission incurred on the order. Shown below are the current costs of operation: a. What costs are relevant to this decision? b. Provide an incremental analysis to be used in determining whether or not the order should be accepted. c. Are there any qualitative considerations that need to be addressed? Explain.

The purpose of incremental analysis is to find the alternative

What are the two steps in the analysis for a sales mix decision?

It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.

A sell or process-further decision is a decision about whether to sell a joint product at the split-off point or sell it after further processing.

Opportunity costs arise when the choice of one course of action eliminates the possibility of another course of action.

Discuss the qualitative factors that should be considered in short-run decision making.

The costs incurred beyond the split-off point are called

Sunk costs are not relevant for decisions based on incremental analysis.

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

Which of the following typically would be considered an incremental cost?

The difference in total costs between two alternatives is referred to as the

Fixed costs are irrelevant in make-or-buy decisions.

Products Green, Red, and White have unit contribution margins of $6.50, $12, and $10, respectively, and require 2, 4, and 3 direct labor hours per unit, respectively. If demand currently is far exceeding supply, on which product should the company concentrate its efforts?