Deck 7: Relevant Costs and Product Planning Decisions

Question 1

Which of the following statements is true regarding special order decisions?

A) Special order decisions are long-run decisions.
B) Whether or not the company has excess capacity is seldom a consideration for special order decisions.
C) Both quantitative and qualitative impacts should be considered.
D) The sales price of a special order should never be below the price offered to regular customers.

Answer 1

C

Question 2

Which of the following statements is true when a company is considering whether to make or buy a component of a product that it currently manufactures?

A) If none of the current fixed overhead is avoidable when outsourcing, the product should be made internally.
B) If the current fixed overhead is avoidable when outsourcing, the product should be outsourced.
C) If the relevant costs to make internally are greater than the relevant costs of outsourcing, the product should be outsourced.
D) If the cost of outsourcing is greater than the direct materials cost of making internally, the product should continue to be made internally.

Answer 2

C

Question 3

Which of the following would not be a factor in the consideration of whether or not a special order is accepted or not?

A) Variable costs
B) Avoidable fixed costs
C) Sales price of the special order
D) Unavoidable fixed costs

Answer 3

D

Question 4

A local vendor at the county fair sells snow cones for $.50 each. When 250 snow cones are sold, each snow cone is estimated to have $.10 in variable costs and $.15 in fixed costs. A local school group plans on attending the fair next week and wishes to purchase 50 snow cones for $.25 each. The vendor can sell as many as 400 snow cones per day. If the special order were accepted, net income would:

A) not change.
B) decrease by $25.00.
C) increase by $12.50.
D) increase by $7.50.

Question 5

JNR Products produces and sells plastic soda cups with specialized logos on the front. They sell the cups in batches of 500 for $125 per batch. The company has the capacity to produce 100 batches per month but averages much less. When 75 batches are sold a month, each batch has $40 worth of variable costs and $5 worth of fixed overhead costs allocated to it. The company has been approached by a local fireman's association who wishes to purchase three batches of cups for $50 per batch. If the special order were accepted, net income would:

A) increase by $10.
B) decrease by $225.
C) increase by $15.
D) increase by $30.

Question 6

Preston Wade Preston Wade, a local craftsman, normally sells his handcrafted wooden birdhouses for $145 each. Preston has the capacity to produce as many as 60 birdhouses a week. In a normal week, Preston makes 20 birdhouses with the following costs per unit:
Refer to the Preston Wade information above. Preston has received a special order from a local plant nursery to purchase 40 birdhouses for a price of $80 each. The nursery wishes to have the birdhouses engraved with their own logo, therefore, the order would require the rental of a special engraving tool at a cost of $250. If Preston accepts the special order, net income will increase by:

A) $1,050
B) $1,750
C) $2,000
D) $3,200

Question 7

Which of the following costs is least likely to be relevant in deciding whether to accept a special order?

A) Variable direct labor costs
B) Variable selling costs
C) Fixed manufacturing overhead
D) Variable packaging and shipping costs

Question 8

Which of the following is not a consideration associated with outsourcing?

A) The effect on employees.
B) The effect on vertical integration.
C) The effect on unavoidable fixed costs.
D) The effect on variable costs.

Question 9

Which of the following would not be a factor in the consideration of whether or not a special order should be accepted?

A) Excess capacity
B) Variable costs
C) Sunk costs
D) Qualitative factors

Question 10

A local vendor at the county fair sells snow cones for $.50 each. When 250 snow cones are sold, each snow cone is estimated to have $.10 in variable costs and $.15 in fixed costs. A local school group plans on attending the fair next week and wishes to purchase 50 snowcones for $.25 each. The vendor can sell as many as 400 snowcones per day. What is the minimum price the vendor should charge for the snowcones?

A) $ .50
B) $ .25
C) $ .10
D) $ .75

Question 11

Which of the following will always be considered in special order decisions?

A) Unavoidable costs
B) Fixed costs
C) Sunk costs
D) Excess capacity

Question 12

Vertical integration:

A) is achieved when a company acquires many of its competitors.
B) is accomplished when a company is involved in multiple steps in the value chain.
C) is rarely attempted due to the risks involved.
D) ensures that the highest quality products are produced at the lowest possible price.

Question 13

A local science museum normally sells tickets to its museum for $5 each. The daily maximum capacity of the museum is 1,000 visitors. At the maximum capacity, fixed costs are $2 per visitor and variable costs are $1.50 per visitor. A local school group has approached the museum wishing to purchase 50 special passes at a cost of $2.50 each. Assuming the museum has excess capacity, if the special order were accepted, net income would:

A) increase by $50.00.
B) decrease by $125.00.
C) increase by $125.00.
D) decrease by $50.00.

Question 14

Preston Wade Preston Wade, a local craftsman, normally sells his handcrafted wooden birdhouses for $145 each. Preston has the capacity to produce as many as 60 birdhouses a week. In a normal week, Preston makes 20 birdhouses with the following costs per unit:
Refer to the Preston Wade information above. Preston has received a special order from a local plant nursery for 40 birdhouses. The nursery wishes to have the birdhouses engraved with their own logo, therefore, the order would require the rental of a special engraving tool at a cost of $250. Preston requires a minimum $2,500 profit on any special order. The minimum price per birdhouse that Preston should charge the nursery is:

A) $65.00.
B) $98.75.
C) $95.00.
D) $145.00.

Question 15

Quinton Products manufactures digital cameras. Currently, the company manufactures its own carrying case for the cameras at the following unit costs: Another manufacturer has offered to supply Quinton with the case at a cost of $6 each. Quinton currently makes 9,000 cases annually. If Quinton accepts the offer, what will be the short-term impact on net income?

A) No impact on net income.
B) Decrease by $9,000.
C) Increase by $9,000.
D) Decrease by $18,000.

Question 16

Speed Quest Inc. manufactures speed boats. Currently, the company manufactures its own engine for the boats at the following unit costs: Another manufacturer has offered to supply Speed Quest with the engine at a cost of $85 each. Speed Quest currently makes 1,000 boats annually. If Speed Quest accepts the offer, what will be the short-term impact on net income?

A) Decrease of $5,000.
B) Increase of $15,000.
C) Decrease of $85,000.
D) Increase of $20,000.

Question 17

Collegiate Products produces and sells padded stadium seats emblazoned with a university logo. The company has the capacity to produce as many as 6,000 seats per month but consistently averages much less. When 4,500 seats are produced, each seat has $5 of variable costs and $2 of fixed overhead costs allocated to it. The seats typically sell for $12 each. The company has been approached by a small college who wishes to purchase 500 seats for special alumni at a price of $5 per seat. If the special order were accepted, net income would:

A) decrease by $1,000.
B) increase by $2,500.
C) decrease by $12,500.
D) not change.

Question 18

Which of the following types of costs should always be considered in special order decisions?

A) Unavoidable costs
B) Relevant costs
C) Sunk costs
D) Fixed costs

Question 19

When are fixed costs relevant in a make or buy decision?

A) Fixed costs are never relevant to the decision.
B) Fixed costs are relevant when they differ among alternatives.
C) Fixed costs are always relevant to the decision.
D) Fixed costs are relevant when they exceed variable costs.

Question 20

Averette & Averette Averette & Averette, a local dental practice, currently makes its own dentures for customers. The dental practice has one part-time employee who comes in weekly to make dentures. The employee is paid $150 per denture set. The direct materials and variable overhead cost per set of dentures is $75 and $25, respectively. In addition, the practice allocates $10,000 of fixed overhead to the denture-making department. The practice makes 1,000 sets of dentures per year. An outside company who specializes in the making of dentures has offered to make each set of dentures for Averette & Averette for $255 per set.
Refer to the Averette & Averette information above. What are Averette & Averette's total relevant costs to make the dentures themselves?

A) $300
B) $400
C) $415
D) $350

Question 21

Kellerman Detailing Service Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows:
Most of the car detailing is done by hand.
Refer to the Kellerman Detailing Service information above. There is a maximum of 4,050 direct labor hours available each year. If demand were equally strong for both packages and the company could sell an unlimited number of either package, how many of which kind(s) of package(s) should be sold in order to maximize profits?

A) 1,400 standard
B) 1,075 deluxe
C) 1,400 standard and 1,075 deluxe
D) 810 standard and 810 deluxe

Question 22

Carlton Products has three product lines: A, B, and C.
Management is considering dropping product line B. If it is discontinued, all of its fixed costs can be avoided. The discontinuation of product line B would:

A) decrease net income $10,000.
B) increase net income $140,000.
C) decrease net income $130,000.
D) increase net income $10,000.

Question 23

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows:
Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year.
Refer to the Decker Products information above. If demand were strong for both sets and the company could sell an unlimited number of either style, what is the maximum total contribution margin the company could have?

A) $ 875,000
B) $ 281,250
C) $1,125,000
D) $1,750,000

Question 24

Laurel Inc. has three product lines: A, B, and C. Management is considering dropping product line C. If it is discontinued, one-half of its fixed costs can be avoided. The discontinuation of product line C would:

A) decrease net income by $3,500.
B) increase net income by $1,000.
C) decrease net income by $12,500.
D) increase net income by $4,500.

Question 25

Tremaine Inc. has three product lines: A, B, and C. Management is considering dropping product line A. If it is discontinued, $14,000 of its fixed costs can be avoided. The discontinuation of product line A would:

A) decrease net income by $15,000.
B) increase net income by $21,000.
C) decrease net income by $4,000.
D) increase net income by $4,000.

Question 26

Which of the following statements regarding resource utilization is not true?

A) Resource utilization decisions are usually short-term in nature.
B) Resource utilization decisions require the identification of a constraint.
C) Resource utilization decisions relates to an analysis of which fixed costs are unavoidable.
D) Resource utilization decisions require managers to compute a product's contribution margin.

Question 27

Kellerman Detailing Service Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows:
Most of the car detailing is done by hand.
Refer to the Kellerman Detailing Service information above. For the upcoming year, there is a maximum of 4,300 direct labor hours available. Management believes that the demand for both the standard and deluxe detailing is limited to 1,000 each per year. How many standard and deluxe detailing jobs should be sold in the upcoming year in order to maximize profits?

A) Standard: 900 Deluxe: 750
B) Standard: 100 Deluxe: 1,000
C) Standard: 1,400 Deluxe: 1,000
D) Standard: 450 Deluxe: 900

Question 28

Henderson Manufacturing Inc. Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 10,000 motors are manufactured each year, the motor costs per unit are as follows:
Plymouth Inc. has offered to sell Henderson 10,000 motors for $14 per unit. If Henderson accepts the offer, 50% of the fixed overhead currently allocated to the motors could be avoided.
Refer to the Henderson Manufacturing Inc. information above. If Henderson accepts the offer to purchase 6,000 motors from Plymouth, the net income will:

A) decrease by $9,000.
B) increase by $10,000.
C) decrease by $10,000.
D) increase by $9,000.

Question 29

Kellerman Detailing Service Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows:
Most of the car detailing is done by hand.
Refer to the Kellerman Detailing Service information above. For the upcoming year, there is a maximum of 4,300 direct labor hours available. Management believes that the demand for both the standard and deluxe detailing is limited to 1,000 each per year. If the company maximizes profits, what is the maximum contribution margin the company could have in the upcoming year?

A) $ 67,500
B) $ 60,000
C) $106,000
D) $ 60,750

Question 30

Compton Products Inc. Compton Products Inc. manufactures humidifiers. The company currently makes all of the electronic components for the humidifier itself. When 10,000 units are manufactured each year, the motor costs per unit are as follows:
McClintock Inc. has offered to sell Compton 10,000 motors for $25 per unit. If Compton accepts the offer, 75% of the fixed overhead currently allocated to the motors could be avoided.
Refer to the Compton Products Inc. information above. What are the relevant costs per unit of Compton making the motors themselves?

A) $21.00
B) $23.25
C) $27.75
D) $30.00

Question 31

Paxton Products has three product lines: A, B, and C. Management is considering dropping product line B. In order for the dropping of product line B to not cause an overall decrease in profits, product line B's avoidable fixed costs should be at least:

A) $40,000.
B) $30,000.
C) $10,000.
D) $70,000.

Question 32

Compton Products Inc. Compton Products Inc. manufactures humidifiers. The company currently makes all of the electronic components for the humidifier itself. When 10,000 units are manufactured each year, the motor costs per unit are as follows:
McClintock Inc. has offered to sell Compton 10,000 motors for $25 per unit. If Compton accepts the offer, 75% of the fixed overhead currently allocated to the motors could be avoided.
Refer to the Compton Products Inc. information above. If Compton accepts the offer to purchase 10,000 motors from McClintock, the net income will:

A) increase by $27,500.
B) decrease by $17,500.
C) increase by $50,000.
D) decrease by $40,000.

Question 33

A particular product line should not be dropped if:

A) its total fixed costs are more than its contribution margin.
B) its avoidable fixed costs are less than its contribution margin.
C) its unavoidable fixed costs are more than its contribution margin.
D) its variable costs are more than its fixed costs.

Question 34

Averette & Averette Averette & Averette, a local dental practice, currently makes its own dentures for customers. The dental practice has one part-time employee who comes in weekly to make dentures. The employee is paid $150 per denture set. The direct materials and variable overhead cost per set of dentures is $75 and $25, respectively. In addition, the practice allocates $10,000 of fixed overhead to the denture-making department. The practice makes 1,000 sets of dentures per year. An outside company who specializes in the making of dentures has offered to make each set of dentures for Averette & Averette for $255 per set.
Refer to the Averette & Averette information above. If Averette & Averette outsources the making of dentures, the net income will:

A) decrease by $15,000.
B) increase by $5,000.
C) increase by $15,000.
D) decrease by $5,000.

Question 35

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows:
Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year.
Refer to the Decker Products information above. What is the contribution margin per unit of limited resource for each type of set?

A) Standard: $125.00 Deluxe: $100.00
B) Standard: $225.00 Deluxe: $250.00
C) Standard: $450.00 Deluxe: $700.00
D) Standard: $112.50 Deluxe: $ 87.50

Question 36

In the decision on whether or not to drop an unprofitable product line, the product line will most likely be dropped if:

A) all of the product line's fixed costs are unavoidable.
B) the product line's total fixed costs are less than the contribution margin lost from dropping the product line.
C) the contribution margin lost from dropping the product line is less than the fixed costs avoided from dropping the product line.
D) the contribution margin lost from dropping the product line is more than the fixed costs avoided from dropping the product line.

Question 37

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows:
Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year.
Refer to the Decker Products information above. If demand were strong for both sets and the company could sell an unlimited number of either style, how many of which kind(s) of wooden swing set(s) should be produced in order to maximize profits?

A) 2,500 standard sets
B) 1,250 deluxe sets
C) 833 standard sets and 833 deluxe sets
D) 1,500 standard sets and 1,250 deluxe sets

Question 38

Henderson Manufacturing Inc. Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 10,000 motors are manufactured each year, the motor costs per unit are as follows:
Plymouth Inc. has offered to sell Henderson 10,000 motors for $14 per unit. If Henderson accepts the offer, 50% of the fixed overhead currently allocated to the motors could be avoided.
Refer to the Henderson Manufacturing Inc. information above. What are the relevant costs per unit of Henderson manufacturing the motors themselves?

A) $15.50
B) $15.20
C) $19.00
D) $14.00

Question 39

In resource utilization decisions, managers should:

A) minimize the contribution margin per unit.
B) minimize the use of the scarce resource.
C) maximize the contribution margin per unit of scarce resource.
D) maximize the contribution margin per unit.

Question 40

Which of the following is the least likely to be a consideration in a resource utilization decision?

A) Shelf space
B) Direct labor hours
C) Machine time
D) Fixed costs

Question 41

Which of the following is most likely to represent a bottleneck?

A) A production machine that is underutilized.
B) A workstation that requires significant supervision.
C) A production machine that has limited capacity.
D) An employee who has one hour of idle time each day.

Question 42

In a sell or process further decision, if the incremental revenue of additional processing is greater than the incremental cost of additional processing, then:

A) it is less profitable to process further.
B) it is more profitable to process further.
C) total fixed costs have increased.
D) total product costs have decreased.

Question 43

In deciding whether to sell a product or to process it further, which of the following pieces of information would not be relevant to the decision?

A) Costs of further processing.
B) Costs incurred up to the decision point.
C) Sales price if processed further.
D) Customer demand with further processing.

Question 44

Joyner Products Joyner Products makes cedar garden benches in three sizes: small, medium, and large. Joyner sells the benches to local retailers. The benches can be sold with or without assembly. The following information is available for each table:
Refer to the Joyner Products information above. What is the maximum amount of increase in net income from further processing?

A) $3,625
B) $2,625
C) $6,625
D) $4,000

Question 45

Serenity Garden Inc. Serenity Garden Inc. produces and sells a variety of garden accessories. One of the product lines the company makes is unpainted gnome statues that come in three sizes: small, medium, and large. The company is considering painting the gnomes. The following information is available regarding unpainted and painted gnomes:
Refer to the Serenity Garden Inc. information above. What is the maximum amount of increase in net income from further processing?

A) $2,100
B) $2,600
C) $7,600
D) $1,600

Question 46

Carolina Potato Inc. currently sells cut sweet potatoes for $.85 per can. The cost of producing the sweet potatoes is $.18 per can. Carolina Potato is considering starting a line of mashed sweet potatoes. The additional processing costs would be $.06 per can and each can would sell for $.95. Which of the following pieces of information is not relevant to the decision to sell or process further?

A) $.06 additional processing cost
B) $.18 production cost
C) $.95 sales price
D) demand for pureed sweet potatoes

Question 47

Mountaineer Products Mountaineer Products manufactures two types of tents: single-wall and double-wall. Selected data related to each type of tent is as follows:
Total fixed overhead is $150,000. Most of the manufacturing process is done on specialized machines. For the upcoming year, there is a maximum of 9,000 machine hours available. Management believes there is sufficient demand for 3,000 single-wall and 4,000 double-wall tents each year.
Refer to the Mountaineer Products information above. In order to maximize profits, how many of each type of tent should be produced?

A) Single-wall: 3,000 Double-wall: 1,000
B) Single-wall: 0 Double-wall: 3,000
C) Single-wall: 1,800 Double-wall: 1,800
D) Single-wall: 1,500 Double-wall: 4,000

Question 48

In deciding whether to sell a product or to process it further, which of the following costs are relevant to the decision?

A) Material costs incurred up to the decision point.
B) Costs incurred to process further.
C) Overhead costs incurred up to the decision point.
D) Direct materials and direct labor costs only.

Question 49

Mountaineer Products Mountaineer Products manufactures two types of tents: single-wall and double-wall. Selected data related to each type of tent is as follows:
Total fixed overhead is $150,000. Most of the manufacturing process is done on specialized machines. For the upcoming year, there is a maximum of 9,000 machine hours available. Management believes there is sufficient demand for 3,000 single-wall and 4,000 double-wall tents each year.
Refer to the Mountaineer Products information above. If the company produces in order to maximize its profits, what would be the contribution margin for the upcoming year?

A) $232,500
B) $382,500
C) $705,000
D) $855,000

Question 50

What is a special order? What factors does a company consider when examining a special order?

Question 51

Joyner Products Joyner Products makes cedar garden benches in three sizes: small, medium, and large. Joyner sells the benches to local retailers. The benches can be sold with or without assembly. The following information is available for each table:
Refer to the Joyner Products information above. Which bench(es) should be assembled before they are sold to retailers?

A) Small and medium
B) Medium and large
C) Small and large
D) Small, medium, and large

Question 52

Wright Manufacturing Wright Manufacturing makes picnic tables in three sizes: small, medium, and large. The picnic tables can be sold with or without a finishing stain. The following information is available for each table:
Refer to the Wright Manufacturing information above. What is the maximum amount of increase in net income from further processing?

A) $81,125
B) $ 5,525
C) $82,125
D) $ 5,625

Question 53

The theory of constraints:

A) is a management tool used to determine whether or not a company should accept a special order.
B) helps in identifying the bottlenecks in a production process.
C) helps in estimating the fixed overhead costs in a production process.
D) is a management tool used for deciding whether a product should be sold "as is" or processed further.

Question 54

Hannah's Homemade Cookies produces and sells delicious shortbread cookies. The cost of producing a bag of cookies is $.65 and the bag sells for $3.75. Hannah is considering processing all the cookies further by dipping them in chocolate. The additional processing costs would be $.50 per bag and the sales price of the chocolate-dipped cookies would be $4.20 per bag. If Hannah can sell 5,000 bags of either type of cookie per year, which of the following statements is true if she chooses to process the cookies further?

A) Net income would increase by $2,250 per year.
B) Net income would decrease by $2,500 per year.
C) Net income would decrease by $250 per year.
D) Net income would increase by $15,250 per year.

Question 55

You overhear the manager of a sign shop say, "I'd never accept a special order! How could you ever make money selling products below full cost?" Do you agree? Why or why not?

Question 56

Tilton Food Warehouse Club sells food and other items in bulk to its members. Tilton is very selective in the products it sells because of limited shelf space. It has been asked by a canned vegetables manufacturer to consider adding three of its canned food items. The following information is available regarding each of the possible canned food items: Assuming that there is unlimited demand for all items, if Tilton has 15 feet of shelf space available, which of the following statements is true if they wish to maximize profits?

A) Tilton should sell only item #1.
B) Tilton should sell only item #2.
C) Tilton should sell only item #3.
D) Tilton should sell an equal amount of each item.

Question 57

Wright Manufacturing Wright Manufacturing makes picnic tables in three sizes: small, medium, and large. The picnic tables can be sold with or without a finishing stain. The following information is available for each table:
Refer to the Wright Manufacturing information above. Which table(s) should be processed further?

A) Small and medium tables
B) Medium and large tables
C) Large tables
D) Small, medium, and large tables

Question 58

Serenity Garden Inc. Serenity Garden Inc. produces and sells a variety of garden accessories. One of the product lines the company makes is unpainted gnome statues that come in three sizes: small, medium, and large. The company is considering painting the gnomes. The following information is available regarding unpainted and painted gnomes:
Refer to the Serenity Garden Inc. information above. Which gnomes, if any, should be painted?

A) Small, medium, and large
B) Medium and large
C) Small and medium
D) None should be painted.

Question 59

If a company is faced with a limited resource, which of the following is not a feasible option for alleviating the constraint?

A) Focusing on products that require less use of the resource.
B) Increasing the capacity of the limited resource.
C) Reducing the use of the resource in production.
D) Increasing the capacity of an underutilized resource.

Question 60

In the production process, bottlenecks:

A) maximize profits.
B) maximize the use of scarce resources.
C) limit throughput.
D) minimize the total cost of a product.

Question 61

Berringer Enterprises manufactures 10 product lines. The following information is available for one of these product lines:
The company's controller is considering dropping the line because it is unprofitable. The controller believes that if the line is dropped, overall company profits are guaranteed to increase. However, the managerial accountant says, "That is not necessarily always the case." Do you agree or disagree with the accountant? Why or why not?

Question 62

Quality Products produces and sells screen-printed t-shirts to local organizations. The normal sales price per shirt is $12. Due to setup costs, they only accept orders of at least 100 shirts. The setup cost per order is $40 and the variable costs per shirt are $3. Fixed overhead costs per month total $2,000. Quality Products has the capacity to screen-print as many as 5,000 shirts per month, but is currently producing around 3,000. On May 1, the company was approached by a local non-profit group who wishes to place a single order for 100 shirts. The non-profit group has indicated that they can only pay $5 per shirt.
Required:

Question 63

Morris Inc. manufactures two products: Widgets and Gizmos. Widgets have a contribution margin per unit of $30 and require 2 hours of direct labor while Gizmos have a contribution margin per unit of $39 and require 3 hours of direct labor.

Question 64

List at least two factors that should be considered in a make or buy decision.

Question 65

Sugarhill Products makes a wood product in three sizes: small, medium, and large. Currently, the company does not stain any of the products, but market research has indicated that they can be sold with or without a finishing stain. The following information is available:
Required:

Question 66

Assuming there is sufficient customer demand either way, how does a company decide whether to sell a product or to process it further? When should it be processed further?

Question 67

When are fixed costs relevant in a make or buy decision? Give one example of a relevant fixed cost.

Question 68

A local skating rink charges each person $5 to skate and another $3 for each skate rental. The rink has determined that on a daily basis, when 100 tickets are sold, the costs per skater are $.50 for variable costs and $1 for fixed overhead costs. The rink has the capacity for up to 175 skaters per day. A local kid's day camp has asked the rink to allow up to 35 children to skate for $2.50 each on July 15. This price would include the cost of a skate rental. During July, the rink averages 100 skaters per day.
Required:

Question 69

Describe the theory of constraints. In doing so, define bottlenecks and throughput.