Deck 11: Decision Making and Relevant Information

Question 1

The Gameshop manufactures specialized board games.Management is attempting to search for ways to reduce costs and is considering two alternatives for an upcoming project of special games that must be delivered to the customer in 12 months' time.Management agreed to the special project job as they have an idle plant that is scheduled for demolition 18 months from now, and either alternative will easily meet the delivery deadline.Alternative 1 requires 10 machine operators and 2.5 individuals to handle direct materials.Employee pay averages $17.50 per hour and will increase to $18.50 at the mid-point (July 1)of next year.Each employee currently works 2,500 hours but will decrease to 2,400 hours if Alternative 2 is implemented.The second proposal only requires 8.5 workers.Which of the following items of information are relevant to this decision?

A)property taxes for the idle plant
B)hourly wage rates
C)the timing of the wage increase
D)the number of employees required in each alternative
E)the delivery deadline

Answer 1

D

Question 2

All fixed costs are irrelevant in relevant-cost analysis.

Answer 2

False

Question 3

Sunk costs

A)are relevant.
B)are differential.
C)have future implications.
D)are ignored when evaluating alternatives.
E)are evaluated to determine if they are relevant or not evaluating alternatives.

Answer 3

D

Question 4

Past costs that are unavoidable and unchangeable are known as

A)fixed overhead costs.
B)operating costs.
C)product production costs.
D)sunk costs.
E)constraining costs.

Question 5

All variable costs are relevant in relevant-cost analysis.

Question 6

Which of the following costs are never relevant in the decision-making process?

A)fixed costs
B)historical costs
C)relevant costs
D)variable costs
E)opportunity costs

Question 7

Jansen Industries is considering replacing a machine that is presently used in its production process.The following information is available: Which of the information provided in the table is irrelevant to the replacement decision?

A)the annual operating cost of the old machine
B)the original cost of the old machine
C)the current disposal value of the old machine
D)the future disposal value of the replacement machine
E)the remaining useful life of the old machine

Question 8

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

Question 9

The last step in the decision process is normally to

A)evaluate and explain outcomes.
B)make assumptions and predictions.
C)choose alternatives.
D)perform quantitative analysis.
E)gather information.

Question 10

The purpose of evaluating performance in the decision process is to provide feedback.

Question 11

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

Question 12

A decision model is a formal method of making a choice that uses only quantitative analyses.

Question 13

Divisional revenues which remain at the same level from year to year are known as relevant revenues.

Question 14

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

A)direct labour costs
B)historical costs
C)relevant costs
D)direct materials costs
E)indirect costs

Question 15

When making decisions, it is best to use

A)average costs.
B)fixed costs that would be incurred.
C)unit cost, rather than total cost.
D)variable costs that would be incurred.
E)relevant costs.

Question 16

A computer system installed last year is an example of a(n)

A)sunk cost.
B)relevant cost.
C)differential cost.
D)avoidable cost.
E)opportunity cost.

Question 17

Each item included in the relevant-cost analysis should differ according to the alternative being considered and be an expected future revenue or cost.

Question 18

The feedback obtained in the decision process cannot affect

A)future predictions.
B)the prediction method.
C)the decision model.
D)implementation.
E)past performance.

Question 19

When choosing between two alternatives, costs that do not differ between the two alternatives can be considered to be irrelevant to that decision.

Question 20

Which of the following should management consider to avoid the pitfalls of relevant-cost analysis?

A)Consider all current revenues and costs.
B)Include any item of revenue or cost that is either an expected future revenue or expected future cost, and, differs between the alternatives.
C)Historic revenues and costs for items that differ according to alternatives should be considered.
D)Assume that all fixed costs are irrelevant.
E)Assume that all variable costs are relevant.

Question 21

Answer the following question(s)using the information below.John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again.His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash.Sherry estimated the following costs for the two cars:

The cost NOT relevant for this decision is the

A)acquisition cost of the Trail Blazer.
B)acquisition cost of the Grand Cherokee.
C)repairs to the Trail Blazer.
D)annual operating costs of the Grand Cherokee.
E)annual operating costs of the Trail Blazer.

Question 22

An example of an outsourcing process is when a computer company purchases keyboards from another company instead of producing the components internally.

Question 23

Explain what revenues and costs are relevant when choosing among alternatives.

Question 24

Answer the following question(s)using the information below.John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again.His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash.Sherry estimated the following costs for the two cars:

Koch Brothers purchased a new production machine for $200,000.It is capable of producing 400,000 units over its useful life, thus the manufacturer's salesperson claimed the unit cost would only be $0.50.Koch's own engineers recommended that the company acquire a machine that would have a unit cost of production of no more than $0.48 (with a $0.03 variance).A competitor of the vendor, who also was trying to sell Koch some equipment, claimed that the $0.50 is understated by $0.04 per unit.The total anticipated demand over the asset's useful life is 300,000 units.Relevant information includes

A)the $0.50 unit cost.
B)the fact that the $0.50 falls below the $0.48 + $0.03 variance.
C)the unit cost at Koch's planned capacity utilization.
D)being able to produce at excess capacity.
E)the different unit costs of production between the two vendors' machines.

Question 25

If a manufacturer chooses to continue purchasing direct materials from a supplier because of the on-going relationship that has developed over the years, the decision is based on qualitative factors.

Question 26

Answer the following question(s)using the information below.Jim's 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it road worthy again.His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash.Julie estimated the following costs for the two cars:

What should Jim do? What are his savings in the first year?

A)Buy the Honda Civic; $15,080
B)Fix the Geo Prizm; $2,820
C)Buy the Honda Civic; $180
D)Fix the Geo Prizm; $5,280
E)Buy the Honda Civic; $80

Question 27

Quantitative factors are always expressed in financial terms.

Question 28

Answer the following question(s)using the information below.Jim's 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it road worthy again.His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash.Julie estimated the following costs for the two cars:

The cost NOT relevant for this decision is the

A)acquisition cost of the Geo Prizm.
B)acquisition cost of the Honda Civic.
C)repairs to the Geo Prizm.
D)annual operating costs of the Honda Civic.
E)annual operating costs of the Geo Prizm.

Question 29

Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part.

Question 30

Explain why sunk costs are not considered relevant when choosing among alternatives.

Question 31

Insourcing is the process of producing goods and services within the firm rather than purchasing them from an outside supplier.

Question 32

Chalet Ski & Patio manufactures a product that has two parts, X and Y.It is currently considering two alternative proposals related to parts X and Y.The first proposal is for buying part Y.This would free up some of the plant space for the manufacture of more of part X and assembly of the final product.The product vice-president believes the additional production of the final product can be sold at the current market price.No other changes in manufacturing would be needed.The second proposal is for buying new equipment for the production of part Y.The new equipment requires fewer workers and uses less power to operate.The old equipment has a net disposal value of zero.Required:
Tell whether the following items are relevant or irrelevant for each proposal.Treat each proposal independently.a.Sales revenue of the product.
b.Variable costs of assembling final products.
c.Direct manufacturing materials, part X.
d.Direct manufacturing materials, part Y.
e.Direct manufacturing labour, part X.
f.Direct manufacturing labour, part Y.
g.Variable manufacturing overhead, part X.
h.Variable manufacturing overhead, part Y.i.Cost of old equipment for manufacturing Y.j.Cost of new equipment for manufacturing Y.k.Variable selling and administrative costs.

Question 33

Answer the following question(s)using the information below.John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again.His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash.Sherry estimated the following costs for the two cars:

Boyd Tool Company is a tool manufacturer.Production capacity is 3,000 units per month; however, they are considering alternative ways to increase capacity to 3,500 units.One of the alternatives involves purchasing new equipment.In this alternative, there are two choices: machine A will provide increased capacity of 4,000 units per month, with unit costs of $14 at capacity; and, machine B will increase capacity to 3,600 units per month with unit costs of $15 at capacity.Both machines are adequate since Boyd's does not intend to go beyond the 3,500 units per month level for the foreseeable future.Relevant information for this decision includes

A)whether other costs will change solely due to a capacity increase.
B)the different unit cost of production between the two machine at their capacity levels.
C)Boyd's planned capacity utilization.
D)excess capacity of either machine.
E)the different unit cost of production between the two machines at Boyd's planned capacity levels.

Question 34

Answer the following question(s)using the information below.John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again.His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash.Sherry estimated the following costs for the two cars:

What should John do? What are his savings in the first year?

A)Buy the Grand Cherokee; $8,100
B)Fix the Trail Blazer; $3,180
C)Buy the Grand Cherokee; $180
D)Fix the Trail Blazer; $6,280
E)Buy the Grand Cherokee; $280

Question 35

Scott is the new manager of the credit card department of a large bank.One of his first changes, directed by the president, was to reorganize the activities of the department.He is reluctant to start the reorganization without including a comprehensive report from accounting about the current costs of operations and possible costs of changes.Required:
Explain how the decision process model can assist the manager and discuss the steps in the decision process model that might be taken to ensure an orderly decision process.

Question 36

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

Question 37

A student is considering whether to finish their university program in four consecutive years, or take a year off and work for some extra cash.Required:
a.Identify at least two revenues or costs that are relevant to making this decision.Explain why each is relevant.
b.Identify at least two costs that would be considered sunk costs for this decision.
c.Comment on at least one qualitative consideration for this decision.

Question 38

Answer the following question(s)using the information below.John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again.His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash.Sherry estimated the following costs for the two cars:

Companies periodically confront decisions about discontinuing or adding branches or business segments.In order to determine the best course of action, a ________ should be performed in order to make the optimal decision.

A)relevant feasibility study
B)relevant risk assessment
C)relevant-revenue and relevant-cost analysis
D)relevant-risks and relevant-loss analysis
E)relevant capital and relevant cash flow analysis

Question 39

The variation in total costs between two alternatives is known as

A)differential cost.
B)analyzed cost.
C)irrelevant cost.
D)predictable cost.
E)expected cost.

Question 40

For one-time-only special orders, variable costs may be relevant but not fixed costs.

Question 41

A one-time-only special order decision

A)should consider only long-term costs and benefits.
B)must still consider short-term and long-term costs and benefits.
C)allows a company to sell products at prices which only cover fixed costs.
D)should consider only short-term costs and benefits.
E)should only be undertaken if there is idle capacity.

Question 42

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 contribution margin per unit?

A)$85
B)$110
C)$145
D)$160
E)$195

Question 43

Anchor Sign Company manufactures signs from direct materials to the finished product.This is an example of which of the following?

A)insourcing
B)outsourcing
C)product needs analysis
D)product specialization
E)utilization of idle facilities

Question 44

Northern Glass Manufacturing has a current production level of 200,000 glass jars per month.Unit costs at this level are: Current monthly sales are 180,000 units.Canadian Hardware Ltd.has contacted Northern Glass Manufacturing about purchasing 15,000 units at $1.00 each.Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order.What is Comics Plus' change in profits if the order is accepted?

A)$4,800 increase
B)$4,800 decrease
C)$1,800 decrease
D)$300 decrease
E)$1,200 increase

Question 45

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

A)fixed.
B)qualitative factors.
C)quantitative factors.
D)variable.
E)relevant costs.

Question 46

Ratzlaff Company has a current production level of 20,000 units per month.Unit costs at this level are: Current monthly sales are 18,000 units.Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each.Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order.What is Ratzlaff Company's change in operating profits if the special order is accepted?

A)$400 increase in operating profits
B)$400 decrease in operating profits
C)$1,800 increase in operating profits
D)$1,800 decrease in operating profits
E)$1,500 increase in operating profits

Question 47

Which of the following represents a qualitative factor?

A)any nonfinancial factor
B)historical costs
C)relevant costs
D)the timing of variable costs
E)an outcome that cannot be measured in numerical terms

Question 48

Employee morale at Bedland Inc.is very high.This type of information is known as

A)a qualitative factor.
B)a quantitative factor.
C)a nonmeasurable factor.
D)a financial factor.
E)a numerical factor.

Question 49

Comics Plus has a current production level of 200,000 comics per month.Unit costs at this level are: Current monthly sales are 180,000 units.Printers Ltd.has contacted Comics Plus about purchasing 15,000 units at $1.00 each.Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order.What is Comics Plus' change in profits if the order is accepted?

A)$6,000 increase
B)$6,000 decrease
C)$7,500 increase
D)$9,000 increase
E)$3,000 increase

Question 50

Answer the following question(s)using the information below.Grant's Kitchens is approached by Ms.Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
Grant's Kitchens has excess capacity.Ms.Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
Other than price, what other item should Grant's Kitchens consider before accepting this one-time-only special order?

A)reaction of shareholders
B)management stock options
C)demand for cherry cabinets
D)price is the only consideration
E)reaction of existing customers to the lower price offered to Ms.Wang

Question 51

Precision Sewing Company incorporates the services of Rosie's Sewing.Precision purchases pre-cut dresses from Rosie's.This is primarily known as

A)insourcing.
B)outsourcing.
C)product needs analysis.
D)product specialization.
E)qualitative analysis.

Question 52

Answer the following question(s)using the information below.Grant's Kitchens is approached by Ms.Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
Grant's Kitchens has excess capacity.Ms.Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
For make-or-buy decisions, a supplier's ability to deliver the item on a timely basis is considered a(n)

A)qualitative factor.
B)relevant cost.
C)differential factor.
D)opportunity cost.
E)quantitative factor.

Question 53

Answer the following question(s)using the information below.Grant's Kitchens is approached by Ms.Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
Grant's Kitchens has excess capacity.Ms.Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
For Grant's Kitchens, what is the minimum acceptable price of this one-time-only special order?

A)$830
B)$900
C)$930
D)$1,440
E)$800

Question 54

Use the information below to answer the following question(s).Northwoods manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $90 per table, consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Northwoods' policy to add a 50% markup to full costs.
Northwoods is invited to bid on a one-time-only special order to supply 100 rustic tables.What is the lowest price Northwoods should bid on this special order?

A)$6,300
B)$7,200
C)$10,800
D)$13,500
E)$9,000

Question 55

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

A)Avoidable fixed costs are irrelevant.
B)Only the variable costs of the project are relevant.
C)Only financial factors should be considered.
D)The project should not be undertaken if total revenue from the project is less than the total costs of production.
E)In the short run, even if revenue is less than the total costs of production, the project could help the company's overall operating income.

Question 56

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:

For Welch Manufacturing, what is the minimum acceptable price of this special order?

A)$110
B)$140
C)$170
D)$240
E)$255

Question 57

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 change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Welch?

A)$70,000 increase in operating profits
B)$10,000 increase in operating profits
C)$10,000 decrease in operating profits
D)$75,000 decrease in operating profits
E)$40,000 increase in operating profits

Question 58

Omark Corporation currently manufactures a subassembly for its main product.The variable costs per unit are $48, in addition to a $6 charge based on estimated selling expenses.R-Corp has contacted Omark with an offer to sell them 5,000 of the subassemblies for $44.00 each.Omark will eliminate $50,000 of fixed overhead if it accepts the proposal.What is increase or decrease in profit from accepting the offer?

A)$50,000 increase
B)$100,000 increase
C)$170,000 increase
D)$50,000 decrease
E)$70,000 increase

Question 59

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?

A)$110
B)$170
C)$255
D)$95
E)$140

Question 60

First Image has a plant capacity of 80,000 units per month.Unit costs at capacity are: Current monthly sales are 78,000 units at $12.60 each.Computer Output Management has contacted First Image about purchasing 2,000 units at $12.00 each.Current sales would not be affected by the special order.What is First Image's change in profits if the order is accepted?

A)$7,400 increase
B)$8,600 increase
C)$4,400 increase
D)$2,600 decrease
E)$3,600 decrease

Question 61

Parker and Spitzer 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.The following per unit data apply for sales to regular customers:
Parker and Spitzer Manufacturing has excess capacity.Required:
a.What is the full cost of the product per unit?
b.What is the contribution margin per unit?
c.Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d.For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?
e.For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of 200 per unit? Why or why not?

Question 62

When opportunity costs exist, they are always relevant.

Question 63

Answer the following question(s)using the information below.Mable's Engine Company manufactures part Z92 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
Mable's Engine Company has the option of purchasing the part from an outside supplier at $61 per unit.It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier.
If Mable's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred)total

A)$59,000.
B)$38,000.
C)$64,000.
D)$15,000.
E)$21,000.

Question 64

Answer the following question(s)using the information below.Mable's Engine Company manufactures part Z92 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
Mable's Engine Company has the option of purchasing the part from an outside supplier at $61 per unit.It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier.
Unit cost data can mislead decisions by including irrelevant costs or by

A)not computing fixed overhead costs.
B)computing labour and materials costs only.
C)computing administrative costs.
D)not computing unit costs at the relevant output level.
E)including qualitative data.

Question 65

Audio Labs collected the following information on the cost of producing 20,000 speaker units:
Cartunes has offered to sell Audio 10,000 speakers for $56.00 each.Should Audio Labs make or buy the parts if the facilities remain idle when speakers are purchased?

A)buy, save $16.00 per unit
B)buy, save $4.00 per unit
C)make, save $2.00 per unit
D)make, save $4.00 per unit
E)make, save $6.00 per unit

Question 66

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

Question 67

Gold River Cabinets is approached by Ms.Mary Wong, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
Gold River Cabinets has excess capacity.Ms.Wong wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.Required:
a.For Gold River Cabinets, what is the minimum acceptable price of this one-time-only special order?
b.Other than price, what other items should Gold River Cabinets consider before accepting this one-time-only special order?
c.How would the analysis differ if there was limited capacity?

Question 68

Axle and Wheel Manufacturing is approached by a European customer to fill a one-time-only special order for a product similar to one offered to domestic customers.The following per unit data apply for sales to regular customers:
Axle and Wheel Manufacturing has excess capacity.Required:
a.What is the full cost of the product per unit?
b.What is the contribution margin per unit?
c.Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d.For Axle and Wheel Manufacturing, what is the minimum acceptable price of this one-time-only special order?
e.For this one-time-only special order, should Axle and Wheel Manufacturing consider a price of $100 per unit? Why or why not?

Question 69

Clearwater Company operates a wine outlet in a tourist area.One litre bottles sell for $12.Daily fixed costs are $3,000, and variable costs are $6 per litre.An average of 750 litres are sold each day.Clearwater has a capacity of 800 litres per day.Required:
a.Determine the average cost per bottle.
b.A bus loaded with 40 senior citizens stops by at closing time and the tour director offers Clearwater $300 for 40 litres.Clearwater refuses, saying they would lose $2.50 on each litre.Is Clearwater correct about the $2.50? Why or why not?
c.A fund-raising organization has offered Clearwater a one-year contract to buy 300 litres a day for $7.50 each.Should they accept the offer? Why or why not?

Question 70

Silver Lake Cabinets is approached by Ms.Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
Silver Lake Cabinets has excess capacity.Ms.Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.Required:
a.For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
b.Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order?
c.How would the analysis differ if there was limited capacity?

Question 71

Answer the following question(s)using the information below.Mable's Engine Company manufactures part Z92 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
Mable's Engine Company has the option of purchasing the part from an outside supplier at $61 per unit.It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier.
The maximum price that Mables's Engine Company should be willing to pay the outside supplier is

A)$43 per Z92 part.
B)$38 per Z92 part.
C)$61 per Z92 part.
D)$59 per Z92 part.
E)$64 per Z92 part.

Question 72

Quantitative factors are relevant, and qualitative factors are irrelevant, in making outsourcing decisions.

Question 73

Answer the following question(s)using the information below.Konrade's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
If Konrade's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will

A)increase by $13,000.
B)increase by $15,000.
C)decrease by $5,000.
D)decrease by $3,000.
E)decrease by $35,000.

Question 74

Answer the following question(s)using the information below.Konrade's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
The maximum price that Konrade's Engine Company should be willing to pay the outside supplier is

A)$80 per TE456 part.
B)$82 per TE456 part.
C)$98 per TE456 part.
D)$100 per TE456 part.
E)$50 per TE456 part.

Question 75

Answer the following question(s)using the information below.Mable's Engine Company manufactures part Z92 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
Mable's Engine Company has the option of purchasing the part from an outside supplier at $61 per unit.It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier.
If Mables's Engine Company purchases 1,000 Z92 parts from the outside supplier per month, then its monthly operating income will

A)increase by $3,000.
B)decrease by $46,000.
C)decrease by $2,000.
D)decrease by $40,000.
E)decrease by $23,000.

Question 76

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

Question 77

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.

Question 78

Answer the following question(s)using the information below.Konrade's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred)total

A)$80,000.
B)$98,000.
C)$50,000.
D)$100,000.
E)$82,000.

Question 79

Snapper Tool Company has a production capacity of 3,000 units per month, but current production is only 2,500 units.Total manufacturing costs are $60 per unit and marketing costs are $16 per unit.Doug Levy offers to purchase 500 units at $76 each for the next five months.Should Snapper accept the one-time-only special order if only absorption-costing data are available?

A)Yes, good customer relations are essential.
B)No, the company will only break even.
C)No, since only the employees will benefit.
D)Yes, since operating profits will most likely increase.
E)Yes, because breaking even is better than having idle capacity.

Question 80

A restaurant is deciding whether it wants to update its image or not.It currently has a cozy appeal with loyal customers.The outdated décor that is still in good condition; menus and carpet need to be replaced.Required:
Identify for the restaurant management:
a.those costs that are relevant to this decision
b.qualitative considerations.