Exam 14: Decision Making: Relevant Costs and Benefits

Torrey Pines is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $120,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, overnight delivery) is expected to decrease by $30,000, and $25,000 of corporate overhead, previously allocated to Human Resources, would be picked up by other departments. If Torrey Pines can secure needed H/R services locally for $410,000, how much would the company benefit by outsourcing?

A constraint function in a linear-programming problem might focus on:

The term "opportunity cost" is best defined as the benefit associated with a rejected alternative when making a choice.

At which step or steps in the decision-making process do qualitative considerations generally have the greatest impact?

To be useful in decision making, information should possess which of the following characteristics? Relevance Accuracy Timeliness A. Yes No Yes B. Yes Yes No C. Yes Yes Yes D. No Yes Yes E. No No Yes

Buchnell Manufacturing has 31,000 labor hours available for producing M and N. Consider the following information: Product M Product Required labor time per unit (hours) 2 3 Maximum demand (units) 6,500 8,000 Contribution margin per unit \ 5.00 \ 5.70 Contribution margin per labor hour \ 2.50 \ 1.90 If Buchnell follows proper managerial accounting practices in terms of setting a production schedule, how much contribution margin would the company expect to generate?

S'Round Sound, Inc. reported the following results from the sale of 24,000 units of IT-54: Sales \ 528,000 Variable manufacturing costs 288,000 Fixed manufacturing costs 120,000 Variable selling costs 52,800 Fixed administrative costs 35,200 Rhythm Company has offered to purchase 3,000 IT-54s at $16 each. Sound has available capacity, and the president is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the "full cost" of production is $17. Which of the following correctly notes the change in income if the special order is accepted?

Song, a division of Carolina Enterprises, currently makes 100,000 units of a product that has created a number of manufacturing problems. Song's costs follow. Manufacturing costs: Variable \ 540,000 Fixed 180,000 located corporate administrative cost 60,000 If Song were to discontinue production, fixed manufacturing costs would be reduced by 70%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

An accounting information system should be designed to provide information that is useful. To be useful the information must be:

The book value of equipment currently owned by a company is an example of a (n):

Which of the following best defines the concept of a relevant cost?

Product costs incurred before the split-off point in a joint processing environment are called:

Lee-Vie Company has met all production requirements for the current month and has an opportunity to manufacture additional units with its excess capacity. Unit selling prices and unit costs for three product lines follow. Plain Regular Super Selling price \ 40 \ 55 \ 65 Direct material 12 16 22 Direct labor (at \2 0 per hour) 10 15 20 Variable overhead 8 12 16 Fixed overhead 6 7 8 Variable overhead is applied on the basis of direct labor dollars, whereas fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional manufacture of all products. Required: A. If Lee-Vie has excess machine capacity and can add more labor as needed (i.e., neither machine capacity nor labor is a constraint), which product is the most attractive to produce? B. If Lee-Vie has excess machine capacity but a limited amount of labor time available, which product or products should be manufactured in the excess capacity?

Prudence Corporation manufactures two products: X and Y. The company has 4,000 hours of machine time available and can sell no more than 800 units of product X. Other pertinent data follow. Product X Product Y Selling price \ 8.00 \ 19.00 Variable cost 3.00 5.00 Fixed cost 3.50 6.25 Machine time per unit 2 hours 3 hours Which of the following is a constraint function of Prudence?

Wright Enterprises, which produces various goods, has limited processing hours at its manufacturing plant. The following data apply to product no. 607: Sales price per unit: $9.60 Variable cost per unit: $6.20 Process time per unit: 4 hours Management is now studying whether to devote the firm's limited hours to product no. 607 or to other products. What key dollar amount should management focus on when determining no. 607's "value" to the firm and deciding the best course of action to follow?

When deciding whether to sell a product at the split-off point or process it further, joint costs are not usually relevant because:

Consider the following statements about relevant costing and activity-based costing: I. The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing system. II. The concept of relevant costs and benefits must be modified for use with an activity-based costing system. III. Generally speaking, the decision maker can better associate relevant costs with the activities that drive them under an activity-based costing system than under a conventional product-costing system. Which of the above statements is (are) true?

Flowers Company is operating at capacity and desires to add a new service to its rapidly expanding business. The service should be added as long as service revenues exceed:

Prudence Corporation manufactures two products: X and Y. The company has 4,000 hours of machine time available and can sell no more than 800 units of product X. Other pertinent data follow. Product X Product Y Selling price \ 8.00 \ 19.00 Variable cost 3.00 5.00 Fixed cost 3.50 6.25 Machine time per unit 2 hours 3 hours Which of the following is Prudence's objective function?

The term "outsourcing" is most closely associated with: