Exam 17: Activity Resource Usage Model and Tactical Decision Making

The first of the six steps of the tactical decision model is to recognize and define the problem.

The following information pertains to Dallas Churning Company's three products: Assume that product F is discontinued and the space used to produce product F is rented for $600 per month. Monthly profits will

The steps in the tactical decision making process are: I. Comparing relevant costs and relating to strategic goals II. Identifying feasible alternatives III. Identifying costs and benefits and eliminating irrelevant costs IV. Selecting best alternative V. Defining the problem What is the proper sequence of steps?

Relevant costs and revenues are present costs and revenues that differ across alternatives.

A model is a set of procedures that, if followed, will lead to a decision.

A tariff is a tax on exports levied by the federal government.

Which of the following costs is NOT relevant to a special-order decision?

Changes in cost of an activity can occur if the demand for the resource exceeds the supply or if the demand for the resource drops.

The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows: Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year. Required: a. Determine the maximum amount per unit Villanueva should pay an outside supplier. b. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative. c. Assume the company could eliminate production supervisors with salaries totaling $30,000 if the component is purchased from an outside supplier. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.

Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $23.50. Yankton 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 Yankton purchases the component from the outside supplier?

Which of the following statement is true concerning the nature of tactical decisions?

Yosemite Company produces Blu-Ray Players for home stereo units. The Blu-Ray Players are sold to retail stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $6,000. In addition, assume that overtime production is not possible and that all other information remains the same as the original data. What is the effect on profits if the special order is accepted?

Which of the following items would be classified as committed resources (long-term)?

Past cost represents an allocation of a cost already incurred.

Committed resources are acquired in advance of usage, through implicit contracting.

Firms may be asked to accept a special order of their product for a reduced price if

A doctor choosing between buying laboratory tests externally or performing the tests in house is an example of a decision.

A keep-or-drop decision uses irrelevant cost analysis to determine whether to continue or discontinue a segment or line of business.

Future costs which differ across alternatives are called costs.

A decision to accept or reject a specially priced order is an example of a decision.