Exam 9: Short Run Decision Analysis

Qualitative factors used by decision makers include all of the following except

Taylor 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: Direct materials, $24,000 Direct labor, $60,000 Variable overhead, $54,000 Fixed overhead, $84,000 Best Guitars, Inc., has offered to sell 12,000 units of the same part to Taylor for $22 per unit. If Taylor 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. - What should Taylor's decision be, and what is the total cost savings that would result?

There is no limit on the availability of resources such as machine time, labor hours.

Joint costs that are incurred before the split-off point should be ignored while making a decision to sell or process a product further.

A cost that does not change between the alternatives is known as a differential cost.

The Norran Company needs 15,000 units of a certain part to use in its production cycle. If Norran buys the part from Waterloo Company instead of making it, Norran 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 Norran to make the part: Direct materials, $3 Direct labor, $12 Variable overhead, $13 Fixed overhead applied, $8 Cost to buy the part from the Waterloo Company, $27 -In deciding whether to make or buy the part, Norran's total relevant costs to make the part are

Estimated future costs that differ between alternative courses of action are termed __________ costs in management decision analysis.

All of the following are relevant in a sell or process-further decision except

Qualitative data as well as quantitative data are useful in the decision process.

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

Sunk costs can be recovered and are relevant in short-run decision making.

Identify each of the following as quantitative or qualitative factors in the decision making of a tax preparation firm: a. Timeliness ____________________ b. Number of clients _____________________ c. Competition from other firms ____________________ d. Cost of computer time _____________________ e. Service quality _____________________

When resources like direct material, labor or time are scarce, the goal is to minimize the contribution margin per unit of scarce resource.

The Dropinsky Company's management wants to determine if Division Y should be eliminated. The following data are available (in thousands). SegmentedIncome Statement Division Division Division Z Total Sales \ 200 \ 300 \ 400 \ 900 Less variable costs 80 150 160 390 Contributionmargin \ 120 \ 150 \ 240 \ 510 Less direct fixed costs 70 170 120 360 Segment margin \ 50 (\ 20) \ 120 \ 150 Less common fixed costs 90 Operatingincome \ 60 a. Assuming all direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated? b. Assuming one-half of the direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?

Outsourcing production or operating activities does not help in reducing a company's investment in physical assets and human resources.

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

During 2010, America, Inc., produced, among other products, 9,300 cameras, incurring the following unit costs: $5 in direct materials, $3 in direct labor, $2 in variable overhead, $4 in fixed overhead, $0.50 in variable selling and administrative expenses, and $1 in fixed selling and administrative expenses. An outsider had offered to produce the cameras for $12 each. Assuming that the factory space would have been idle otherwise, acceptance of the outside offer would have

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

Competition, social issues, and timeliness are examples of qualitative factors.

Many management decisions are unique and hence incompatible with strict rules, steps, or timetables.