Deck 9: Decision Making and Relevant Information

Question 1

In which step of the decision-making process do managers compare predicted benefits?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions About the Future.
D)Step 4: Make Decisions by Choosing Among Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn

Answer 1

D

Question 2

________ are outcomes that are difficult to measure accurately in numerical terms.

A)Quantitative factors
B)Qualitative factors
C)Decision situations
D)Long-run implications
E)Make-or-buy decisions

Answer 2

B

Question 3

The Future Manufacturing Company employed a new Operations Manager.The previous manager did not keep accurate records and the new manager does not have an accurate account of the departmental historical data in 2012 because the employees received a wage increase.The managerial accountant provided the new operations manager the following historical data:

The Executive Director asked the new manager how much the department would save if they considered a reorganization of the manufacturing operations.The specifically asked if a reduction in staff,from 25 full-time employees,to 20 full-time workers is cost effective because the new computer system can absorb the job duties of those 5 employees.The employees heard rumors about a potential layoff in the department and the employee morale is low.
Next,the new manager wants to predict the amount of manufacturing hours based on a reduction in staff.

Required:
Compute the historical cost data,the predicted cost data,and discuss the amount of savings to the department if they reorganize and eliminate 5 workers.Next,compute the new cost data if the manager provides each employee a 10% salary increase.Will an increase in salary increase employee morale? Why or why not?

Answer 3

The historical cost is $1,054,687.50 and the predicted cost is $843,750.The total savings is $210,937.50.The new manager can improve the employee morale if the employees receive a raise.The new predicted cost data after each employee receives a 10% raise is $928,125,with a new total savings of $126,562.50.Managerial Decision to enhance employee moral: This will vary depending on the student response.
Explanation: Historical data:
[($18.75 wage with salary increase × 2,250 total hours × 25 total employees)] = $1,054,687.50
Predicted data:
[($18.75 × 2,250 × 20)] = $843,750
Savings:
[($1,054,687.50 - $843,750)] = $210,937.50
New predicted data with a 10% salary increase.
[($18.75 × 2,250 × 20 × 10%)] = $84,375
[($84,375 + $843,750)] = $928,125
[($1,054,687.50 - $928,125)] = $126,562.50 new total savings with employee wage increase.
It would be nice to give the existing employees a raise since the new manager saves the department $210,937.50,and $126,562.50 total savings after new wage increase to enhance employee morale.

Question 4

Decision models include:

A)only high-low analysis.
B)only regression analysis.
C)only qualitative analysis.
D)only quantitative analysis.
E)quantitative and qualitative analysis.

Question 5

The manager at the Screen Saver Manufacturing manufactures screen savers.The manager continues to find ways to reduce manufacturing costs and the manager received a proposal from Entrepreneurial Consultants to rearrange the production in the upcoming year.The managerial accountant provided the following information:

Required
Compute the current and proposed information and decide whether management should accept the proposal.Which of the following decisions should management accept?

A)$138,000;Current
B)$120,400 Proposed
C)$118,000;Current
D)$124,000;Proposed
E)$180,000;Proposed

Question 6

Which of the following is not a quantitative factor?

A)Marketing costs.
B)Employee morale.
C)Cost of direct materials.
D)Percentage of on-time flight arrivals.
E)Reduction in new product-development time.

Question 7

The sum of all costs in a particular business function of the value chain,are called ________.

A)sunk costs
B)employee morale
C)relevant revenues
D)business function costs
E)one-time-only special costs

Question 8

Reorganization eliminates all manual handling of materials.

Question 9

In which step of the decision-making process do managers reorganize operations to reduce costs?

A)Step 1: Modify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions About the Future.
D)Step 4: Make Decisions by Choosing Among Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 10

Effective feedback might affect future predictions,the prediction used,the way choices are made,or the implementation of the decision.

Question 11

In which step of the decision-making process are managers most likely to predict future manufacturing labor costs?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions About the Future.
D)Step 4: Make Decisions by Choosing Among Alternatives.
E)Step 5: Implement Decision,Evaluate Performance,and Learn.

Question 12

We define relevant revenues as ________.

A)sunk costs
B)theory of constraints
C)product-mix decisions
D)expected future revenues
E)past costs in decisions making

Question 13

In which step of the decision-making process do managers improve implementation when they implement employee training and offer better supervision to employees?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions About the Future.
D)Step 4: Make Decisions by Choosing Among Alternatives.
E)Step 5: Implement Decision,Evaluate Performance,and Learn.

Question 14

The managers at Aberdeen Factory attended a meeting to discuss an existing agenda topic,whether to reorganize its manufacturing labor costs,but they need to determine the historical hourly wage rate of the employees.The manager reported the following historical cost information in 2012:

Required:
Compute the total past (historical)manufacturing labor costs at the Aberdeen Factory.

A)$53,750
B)$750,260
C)$806,250
D)$854,285
E)$905,260

Question 15

A formal method of making a choice that might involve both quantitative and qualitative analysis is ________.

A)sunk costs
B)stockout costs
C)carrying costs
D)decision model
E)economic order

Question 16

In which step of the decision-making process do managers eliminate workers and there is a negative effect on employee morale?

A)Step 1: Modify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions About the Future.
D)Step 4: Make Decisions by Choosing Among Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 17

Relevant costs are ________.

A)past costs only
B)expected future costs
C)qualitative factors only
D)quantitative factors only
E)one-time-only costs

Question 18

Management accountants analyze and present relevant data to guide managers' decisions.

Question 19

Past costs are historical costs,and ________.

A)constraints only
B)make-or-buy decisions
C)product-mix costs only
D)irrelevant to decision making
E)expected future revenues only

Question 20

Why do managers use decision models?

Question 21

The Lawn 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:

The managerial accountant reported that $50,000 of the fixed factory overhead was avoidable.
The manager at Rapid Manufacturing Company offered to sell 15,000 units of the same product to the manager at Lawn Corporation at $40 per unit.Assuming the plant is available,should the manager make or buy the product?

A)Make the part to save $8 per unit.
B)Buy the part to save $8 per unit.
C)Make the part to save $20 per unit.
D)Buy the part to save $20 per unit.
E)Make the part to save $25 per unit.

Question 22

International outsourcing requires managers to evaluate manufacturing and transportation cost,exchange rate risks,and the other strategic and qualitative factors.For example,quality and reliability and efficiency of the supply chain.

Question 23

The manager at Total One manufacturing reported a plant capacity of 225,000 units per month.Unit costs at capacity were reported as follows:

The current sales were reported as $190,000 at $31.00 per unit.The manager at Quality Manufacturing contacted the manager at Total One Manufacturing about the purchase of 2,200 units at $25 per unit.Current sales would not be affected by the one-time-only special order.What is the change in operating profit at Total One Manufacturing if the one-time-only special order is accepted?

A)$10,100 increase
B)$10,250 decrease
C)$12,650 increase
D)$14,230 decrease
E)$16,500 increase

Question 24

Seedem Manufacturing was approached by the international seed firm,Planting Concepts,to request a one-time-only special order for a product similar to the domestic product produced at Seedem Manufacturing,which has excess capacity.The managerial accountant reported the following data,per unit,that is charged to regular clients:

Required:
Compute the full cost of the product,the contribution margin per unit,and the minimum acceptable price for the one-time-only special order.

Question 25

A ________ is the difference in total cost between two alternatives.

A)insourcing
B)outsourcing
C)make-or-buy decision
D)business function cost
E)differential cost

Question 26

Do managers consider long or short strategies in their analysis of the one-time-only special-order decision?

Question 27

Although qualitative factors and quantitative nonfinancial factors cannot measured easily in financial terms,they are important for managers to consider.

Question 28

The manager at the Plymouth Manufacturing Company reported a current production level of 22,000 units per month.The managerial accountant reported the following unit-level costs:

The manager reported monthly sales of 20,000 units.The Salem Company contacted the manager at Plymouth Manufacturing and inquired about the purchase of 1,525 units at $2.10 per unit.The manager noted that current sales would not be affected by the one-time-only special order,and variable marketing/distribution costs would not be incurred with the special order.What is the change in operating profits at Plymouth Manufacturing Company's if the special order is accepted?

A)$1,525 decrease
B)$1,525 increase
C)$1,784.25 decrease
D)$1,784.25 increase
E)There is no change in operating profits

Question 29

The manager at Frame Manufacturing reported the cost to product Frame A was $22 per unit in 2011 and in 2012 the cost increased to $24 per unit.In 2013,the manager at a local supplier offered to supply Frame A for $20 per unit.For the make-or-buy decision:

A)incremental revenues are $4 per unit.
B)incremental costs are $2 per unit.
C)net relevant costs are $2 per unit.
D)differential costs are $4 per unit.
E)None of these are correct.

Question 30

Do managers use historical data to make informed predictions?

Question 31

Producing the same goods or providing the same services within an organization is called ________.

A)outsourcing
B)insourcing
C)incremental cost
D)full cost of product
E)business function costs

Question 32

What is an opportunity cost and why should managers consider it when making decisions?

Question 33

Custom Tooling Solutions has a production capacity of 3,100 units each month,but current production is only 2,600 units.Total manufacturing costs are $62 per unit and marketing costs are $17 per unit.A client offers to purchase 525 units at $78 per unit for the next five months.Should the manager at Custom Tooling Solutions accept the one-time-only special order if only absorption-costing data is available?

Question 34

________ is the additional total revenue from an activity.

A)Incremental revenue
B)Differential costing
C)Make-or-buy decision
D)Business function cost
E)Outsourcing cost

Question 35

How do managers express their analysis of relevant costs?

Question 36

Decisions about whether a producer of goods or services will insource or outsource are called which of the following?

A)Insourcing.
B)Outsourcing.
C)Make-or-buy decisions.
D)Full cost of the products.
E)Business function costs.

Question 37

An incremental cost is the additional total cost incurred for an activity.

Question 38

________ is purchasing goods and services from outside vendors.

A)Insourcing
B)Outsourcing
C)Incremental cost
D)Full cost of product
E)Business function cost

Question 39

The Wise Company manufactures a PT I Component that is used to make several of its products.The managerial accountant reported monthly production costs to produce 1,100 units of PT I Component included:

The managerial accountant estimates that 10% of the fixed overhead costs assigned to PT I Component will no longer be incurred if the company purchases the PT I Component from an outside supplier at $41.50 per unit.
If the manager at Wise Company accepts the offer from the outside supplier,what are the monthly avoidable costs,or those costs that will no longer be incurred? What is the monthly operating income if the manager at Wise Company purchases 1,000 units of PT I Component from an outside supplier? What is the maximum price that the manager at Wise Company should pay to the outside supplier?

A)$40,155;$1,650 decrease;$42.00
B)$41,155;$1,650 increase;$42.06
C)$42,155;$1,655 decrease;$42.10
D)$43,155;$1,655 increase;$43.16
E)$44,155;$1,670 decrease;$43.26

Question 40

Alps Incorporated,a supplier in Switzerland,offered to sell 300,000 toys to the American firm,International Toys,for 270,000 Swiss Francs.Assuming an exchange rate of 1.07 Swiss Francs,what qualitative and quantitative factors should the manager at International Toys consider prior to the purchase of the toys?

Question 41

The managers at Wicker Basket Manufacturing Mart need to determine the contribution margin per machine-hour and the contribution margin per machine-hour to determine the product that maximizes the total contribution margin,and to determine which product to produce and sell.

Required
Compute the contribution margin per machine-hour and the total contribution margin for 200machine hours.Which basket earns the highest contribution margin? Which product maximizes total contribution margin?

Question 42

Managers maximize operating income:

A)to avoid optimal sales.
B)to determine product mix.
C)to disregard income supply and demand.
D)to avoid individual contribution margins.
E)to disregard data about which products to sell and in what quantity.

Question 43

Regardless of the specific constraining resource,managers should always focus on maximizing total contribution margin.

Question 44

The resource that restricts or limits the production or sale of products is:

A)never machine hours.
B)the average contribution margin per unit of constraint.
C)the lowest contribution margin per unit of constraint.
D)the highest contribution margin per unit of constraint.
E)the product that achieves additional capacity in the short-run.

Question 45

The managers at the Wicker Basket Manufacturing Mart assemble two baskets,a standard wicker basket and a deluxe wicker basket,at a plant in Virginia Beach,Virginia.Only 200 machine hours are available daily to produce the baskets.The managerial accountant reported the following information:

Required
Compute the contribution margin per unit and the contribution margin percentage of each basket sold.Do you have enough information to determine which basket should be sold? Show all work.

Question 46

To maximize operating income,the manager:

A)maximizes the contribution margin of the constrained,or bottleneck resource.
B)minimizes the contribution margin of the constrained,or bottleneck resource.
C)eliminates the contribution margin of the constrained,or bottleneck resource.
D)disregards the contribution margin of the constrained,or bottleneck resource.
E)stops the assembly operation process from running to eliminate work.

Question 47

Which of the following is not a desirable management action to relieve the bottleneck constraint of the assembly operation?

A)Eliminate idle time at the bottleneck operation.
B)Shift products that do not have to be made on the bottleneck machine to nonbottleneck machines,or to outside processing facilities.
C)Reduce setup time and processing time at bottleneck operations.
D)Improve the quality of parts,or products manufactured,at the bottleneck operation.
E)Emphasize that poor quality is less costly at a bottleneck operation compared to the nonbottleneck operation.

Question 48

The decisions managers make about which products to sell and in what quantities are:

A)qualitative factors.
B)contribution margins.
C)product-mix decisions.
D)contribution margin per unit.
E)computer-related operating costs.

Question 49

The Channel Company manufactures television remotes for new flat screen televisions.The Brighton Manufacturing Company offered to sell Channel Company 260,000 units to program the remotes next year at $54 per unit.The managerial accountant reported the following expected costs:

Required:
Compute the expected cost per unit in each category to produce 260,000 units next year and the total expected cost per unit.Does the manager at the Channel Company have enough information to accept or decline the offer from the manager at Brighton Manufacturing Company? Why or why not?

Question 50

In product-mix decisions,as short-run changes in product mix occur,the costs that change:

A)are fixed with the number of units produced or sold.
B)are mixed with the number of units produced or sold.
C)vary with the number of units produced or sold.
D)are idle and they never change with the number of units produced and sold.
E)are not relevant because they are only short-run costs.

Question 51

When a resource is constrained,how should managers choose which of the multiple products to produce and sell?

Question 52

Which of the following is not true about product-mix decisions?

A)Decisions have long-run focus.
B)Decisions have short-run focus.
C)Managers maximize operating income.
D)Managers analyze individual product contribution margins.
E)Managers need to understand which products to sell and in what quantity.

Question 53

Product-mix decisions usually have only a long-run focus because they typically arise in the context of capacity constraints that can be relaxed in the long run.

Question 54

Which of the following is not true about the theory of constraints?

A)Defines the measure of investments.
B)Useful in both bottleneck and nonbottleneck operations.
C)Used to maximize operating income.
D)Defines the throughput margin measurement.
E)not used to define the measurement of operating costs.

Question 55

Managers can identify the bottleneck operations:

A)when they identify operations with large quantities of inventory pending work.
B)only through the identification of the operations with no inventory pending work.
C)when they identify the inventories without build up at the assembly operation.
D)through the avoidance of production schedules of the nonbottleneck operation.
E)when they eliminate the contribution margin of the constrained or bottleneck resource.

Question 56

Optimization techniques,such as linear programming,solve more complex problems.

Question 57

How do managers determine the most profitable production schedule and the most profitable product mix?

Question 58

To determine product mix,managers maximize operating income,subject to constraints such as capacity and demand.

Question 59

In contrast to theory of constraints (TOC),activity-based costing (ABC)systems:

A)take a long-run perspective and focus on improving process by eliminating non-value activities.
B)take a short-run perspective and focus on improving process by increasing non-value activities.
C)are less useful for long-run pricing,and capacity management.
D)are less useful in long-run cost control.
E)are less useful in long-run capacity management.

Question 60

Which desirable action that managers take to relieve bottleneck constraints of the assembly operation do managers note that the cost of poor quality at a nonbottleneck operation is the cost of materials wasted?

A)Eliminate idle time at the bottleneck operation.
B)Shift products that are not made on the bottleneck machine to nonbottleneck machines,or to outside processing facilities.
C)Reduce setup time and processing time at bottleneck operations.
D)Improve the quality of parts,or products,manufactured at the bottleneck operation.
E)Other operating costs will increase,while contribution margin will remain unchanged because bottleneck capacity of the assembly operation will not increase.

Question 61

Overhead costs allocated to a sales office and individual customers are always ________.

A)past
B)future
C)current
D)relevant
E)irrelevant

Question 62

What steps can managers take to manage bottlenecks and maximize operations at an organization?

Question 63

The manager at the Sports Shop sells three types of sport products,small,medium,and large.

The manager at the Sports Shop needs to determine if the large product needs to be dropped because it is reporting a loss.Compute the increase or decrease in operating income if the manager drops the large product and does not replace it.
If the manager dropped the large product and rented out the space used to house the product for $10,000 per year,what is the increase or decrease in operating income?

A)$1,000 increase;$6,000 decrease
B)$2,000 decrease;$8,000 increase
C)$3,000 increase;$10,000 decrease
D)$4,000 decrease;$12,000 increase
E)$5,000 increase;$14,000 decrease

Question 64

When managers make decisions about adding or dropping customers,managers only focus on:

A)incremental costs only.
B)opportunity costs only.
C)allocating overhead costs.
D)incremental and opportunity costs only.
E)the value chain and not cost factors.

Question 65

What factors must managers consider when they decide to add or drop a customer,or segment?

Question 66

There is no opportunity cost of using warehouse space and equipment for companies when there is no alternative use of the space and equipment.

Question 67

The managerial accountant at the Vitamin and Mineral Shoppe prepared the following income statement for the most current year:

If the manager had discontinued the Vitamin A product line prior to this year,how would that impact the corporate profits?

Question 68

The Stratford Elite Manufacturing Company cuts and sews insulated curtains.The facility has two workstations to permit managers to cut and finish the product.The manager reported that the cutting station must wait to receive fabric because they wait for the cut fabric from the workers at the cutting machine.The manger determined that the finishing workstation is constrained by the speed of production by the workers at the cutting workstation,based on an eight-hour day.
To eliminate the bottleneck constraint,the employees at the finishing workstation could begin the cutting process two hours earlier each day,compared to the workers at the cutting workstation,because they each complete their work at the same time.The manager realized that this eliminates the bottleneck constraint,but it also increases the amount of finished units produced each day by 175 units.All of the units produced can be sold even though the change resulted in an increase in the inventory stock by 25%,up from 425 units.
The managerial accountant reported that the cost of operating the cutting department an additional two hours each day is $1,750 and the contribution margin of the finished products are $7 each.The inventory carrying costs are $.50 per unit,per day.
Required:
Compute the total production per day in units if the workers at the Finishing workstation work an additional two hours each day at Stratford Elite Manufacturing.What is the net change in the contribution margin if the manager at Stratford Elite Manufacturing makes the change?

A)675 units;$3,008.25
B)700 units;$3,012.75
C)750 units;$3,016.45
D)875 units;$3,018.75
E)925 units;$3,022.65

Question 69

List and describe the three measures defined by the theory of constraint.

Question 70

There is no opportunity cost when:

A)other products are considered.
B)there are other uses for the product.
C)there are other alternatives.
D)there are other uses for a product.
E)there is no alternative use of the equipment or space.

Question 71

Rent,general administration,and corporate-office costs are ________ costs that will not change if a manager drops an account.

A)past
B)future
C)current
D)relevant
E)reliability

Question 72

Depreciation cost is past,or sunk because it represents the cost of equipment that a company has already purchased.

Question 73

To maximize operating income,the manager must maximize contribution margin of the constrained or bottleneck resource.

Question 74

The theory of constraints is used to emphasize that the management of bottleneck operations as a key to improve the performance of production operations.

Question 75

Throughput margin equals revenues plus the direct material costs of the goods sold.

Question 76

The Hobby Shop,a manufacturer of toy airplanes,experienced a slow work process at the plant in Norfolk,Virginia.The setup time at one of the workstations was slow compared to the other workstation.An employee reported this issue to the floor manager.The manager proposed a plan to reduce the setup time,but it will cost $75,000.The change is expected to produce an additional 8,200 planes.The managerial accountant reported the following information:

Required:
Compute the increase in the throughput contribution:

A)$110,200
B)$114,250
C)$116,500
D)$118,900
E)$120,540

Question 77

Sales-order costs are batch-level costs that are fixed with the number of sales orders received from customers.

Question 78

Depreciation on equipment that a company has already acquired is a past cost and therefore irrelevant.

Question 79

Motorcycle Production Services produces miniature motorcycles.The company has two departments,the painting department and the sanding department.The painting department is constrained by the speed of the employees that operate the sanding machines.The employees that work in painting always receive late work from the employees in the sanding department.
Each employee works a seven-hour day.To relieve the bottleneck constraint,the manager at Motorcycle Production Services believes they can add an additional half-day shift to the sanding department.The manager believes they can begin work three and one-half hours earlier than the employees in the painting department,and all employees in each department can end their workday at the same time.
The manager expects to increase finished units produced each day by 180 units.All units produced can be sold and the managerial accountant reported that the cost of an increase in operating the sanding department by three and one-half hours each day is $1,400 and the contribution margin of the finished products is $12 each.Inventory carrying cost is $0.45 per day.
Required:
What is the total production per day if the manager adds the extra shift? Compute the change in the daily contribution margin if the manager implements the change.

A)540.01;$3,583.14
B)550.05;$3,683.14
C)560.10;$3,783.14
D)570.15;$3,883.14
E)580.25;$3,993.14

Question 80

Explain the difference of theory of constraints compared to activity-based costing systems.