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Exam 11: Decision Making and Relevant Information

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Question 81

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When managers are faced with constraints the product line with the higher contribution margin per unit is always the best choice to make.

A) True
B) False

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Question 82

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Opportunity cost is the contribution to income that is recognized through the use of limited resources available in the best alternative.

A) True
B) False

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Question 83

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If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000,then the opportunity cost of holding inventory is $17,000.

When opportunity costs exist,they are always relevant.

Kando Manufacturing Ltd.produces two products,lawn mowers and power washers.Lawn mowers have a unit contribution margin of $75,and power washers have a unit contribution margin of $55.The demand for lawn mowers exceeds their production capacity,which is limited by available direct labour and machine hours.The maximum demand for power washers is 300 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits. Direct manufacturing labour is limited to 600 hours a week and 400 hours is all that the company's outdated machines can run a week.The lawn mowers require 1.5 hours of labour and 1 machine hour.Power washers require 2.5 labour hours and 2 machine hours. Required: Formulate the linear programming objective function and constraints necessary to determine the optimal product mix.

Which of the following is TRUE concerning opportunity costs?

Doggie Dinner,Inc. ,currently manufactures three different types of scientifically balanced dog food.The firm is considering eliminating one of the three products.What factors should be taken into account in making this decision?

Ted owns a small body shop.His major costs include labour,parts,and rent.In the decision making process,these costs are always considered to be

Car Parts Company manufactures a part for use in its production of automobiles.The costs per unit when 10,000 items are produced are: Auto Company has offered to sell to Car Parts Company 10,000 units of the part for $60.The plant facilities could be used to manufacture another part at a savings of $90,000 if Car Parts accepts the offer.In addition,$10 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Car Parts Company? By how much?

A customer can be considered to be a cost object,in the decision to add or drop a particular customer.

Answer the following question(s) using the information below. Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers: -What is the full cost of the product per unit?

Anticipated future costs that differ with alternative courses of action are known as relevant costs.

Past costs that are unavoidable and unchangeable are known as

The total cost difference between two separate alternatives in a decision making process is the net relevant cost.

When considering a project that will require production using otherwise idle resources,which of the following are TRUE?

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

Which of the following anticipated future costs always differ among alternative courses of actions?

Answer the following question(s) using the information below. Schmidt Corporation produces a part that is used in the manufacture of one of its products.The costs associated with the production of 10,000 units of this part are as follows: Of the fixed factory overhead costs,$30,000 is avoidable. -Assuming no other use of their facilities,the highest price that Schmidt should be willing to pay for 10,000 units of the part is

Sarasota Bicycles has been manufacturing its own wheels for its bikes.The company is currently operating at 100% capacity,and variable manufacturing overhead is charged to production at the rate of 30% of direct labour cost.The direct materials and direct labour cost per unit to make the wheels are $3.00 and $3.60 respectively.Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $8 each.If the bicycle company accepts this offer,all variable manufacturing costs will be eliminated,but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products. Required: a.Prepare an incremental analysis for the decision to make or buy the wheels. b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

Lewis Auto Company manufactures a part for use in its production of automobiles.When 10,000 items are produced,the costs per unit are: Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer.In addition,$20 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Lewis Auto Company? By how much?