Exam 23: Short-Run Decision Analysis

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?

The first step in the incremental analysis is to eliminate all relevant revenues and costs.

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

Make-or-buy decisions,such as whether to make a part internally or buy it from an external supplier,may lead to outsourcing.

If the incremental costs of processing further are greater than the incremental revenue,the decision of selling the product at the split-off point is justified.

The objective of segment profitability decisions is to identify the segments that have a negative segment margin so that managers can drop them or take corrective actions.

When faced with a make-or-buy decision,managers need the following information about buying except

Cooper 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 Cooper accepts the order,$8 of fixed overhead per unit will be eliminated. -What is the relevant cost to produce one unit?

Which of the following is true of cost-benefit analysis?

While performing an incremental analysis for outsourcing decision,information such as depreciation is not relevant.

Sales commission expenses are included in special order decision analysis even if the customer approached the company directly.

Why is the book value of equipment irrelevant when considering the replacement of equipment?

Outsourcing is the use of suppliers outside the organization to perform services or produce goods that could be performed or produced internally.

Special orders should be considered only when entire capacity of an organization is used.

Identifying and prescribing corrective actions for short-run decisions falls under the performing stage of the management process.

McGraw Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows: Hill Inc.has offered to sell 12,000 units of the same part to McGraw for $22 per unit.If McGraw were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated. -In the decision to make or buy the part,what is the relevant fixed overhead for McGraw Inc.?

With a special order decision,relevant qualitative factors include all except

There are products or services that can be either sold in a basic form or be processed further.

Alex International needs 20,000 units of a certain part to use in its production cycle.If Alex buys the part from Nicole Company instead of making it,Alex could not use the released facilities in another activity;thus,all of the fixed overhead applied will continue regardless of what decision is made.Accounting records provide the following data: Cost to Alex to make the part: What should Alex's decision be,and what is the total cost savings that would result?

Outsourcing production help in reducing a company's investment in physical assets and human resources.