Exam 17: Activity Resource Usage Model and Tactical Decision Making

Bollinger Company's 2016 income statement is as follows: In an attempt to improve the company's profit performance, management is considering a number of alternative actions. Required: Determine the effect of each of the following on monthly profit. Each situation is to be evaluated independently of all the others. a. Purchasing automated assembly equipment. This action should reduce direct labor costs by 40 percent. It also will increase variable overhead costs by 10 percent and fixed factory overhead by $2,500. b. Reducing the unit selling price by $2 per unit. This should increase the monthly sales by 5,000 units. Fixed factory overhead will increase by $1,500. c. Increase fixed selling and administrative expenses by $1,000 for advertising costs. The number of units sold will increase to 8,000 units.

Qualitative factors that should be considered when evaluating a make-or-buy decision are

Sunk costs are

The following information pertains to Salamandre Company's three products: Assume that product C is discontinued and the extra space is rented for $300 per month. All other information Remains the same as the original data. Annual profits will

For flexible resources, which of the following statements is true?

Concierge Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75. Concierge Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier. What is the effect on income if Concierge purchases the component from the outside supplier?

Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month. Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Noreaster accepts the order. Assuming Noreaster Company has excess capacity, the effect on profits of accepting the order would be a

Outsourcing refers to the move of a business function to another company, either in or out of the U.S.

A special-order decision focuses on whether a specially priced order should be accepted or rejected.

Tactical decision making consists of choosing among alternatives with an immediate or limited end in view.

Cellestial Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The joint costs amount to $200,000. If Processed Further Which product(s) should be sold at split-off to maximize profits in the short run?

In the activity resource model, flexible resources are

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales Volume is 20,000 per year. Capacity is 25,000 units per year. The speakers are currently unpackaged. Packaging them individually would increase costs by $1.20 per unit. However, the units could then be sold for $33.00. All other information remains the same as the original data. What is the effect on profits if Hobart Company packages the speakers?

Which of the following would be TRUE?

Santa Lucia Industries employs 500 workers in the factory. These workers produced 85,000 units in 2016. Due to a special order, the units produced in 2017 increased to 95,000 units. However, Santa Lucia produced these units without adding workers. How is that possible?

Sound tactical decision making

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales Volume is 20,000 per year. Capacity is 25,000 units per year. A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart Company accepts the offer, it will be able to reduce variable costs by 30 percent and rent unused space to an outside firm for $18,000 per year. All other information remains the same as the original data. What is the effect on profits if Hobart Company buys from the Memphis firm?

San Antonio Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Amarillo Company has offered to sell San Antonio Corporation 5,000 units of the part for $112 per unit. If San Antonio Corporation accepts Amarillo Company's offer, total fixed costs will be reduced to $60,000. What alternative is more desirable and by what amount is it more desirable? Alternative Amount

Sound tactical decision making is limited to achieve small objectives.

Relevant costs are