Question 1

If an organization cannot deliver goods or services quickly because of a constraint, managers might relax that constraint to
A) Protect customer loyalty
B) Ensure optimal profitability
C) Increase the selling price of the product
D) Find the next bottleneck

Accepted Answer

Relaxing a constraint can help ensure that customers continue to receive goods or services in a timely manner, which can protect customer loyalty. This can have a positive impact on the organization's reputation and overall success. While increasing profitability may be a goal, this may not necessarily be achieved by relaxing a constraint, and increasing the selling price of a product may not be feasible or desirable for customers. Finding the next bottleneck may be a valuable exercise, but it is not necessarily the best immediate response to a constraint.

Question 2

Managers should generally consider opportunity costs in both "keep or drop" and "make or buy" decisions. Which of the following is an opportunity cost they should consider in both situations?
A) Avoidable fixed costs
B) Benefits from alternate uses of released capacity
C) Depreciation on new machinery
D) Market share

Accepted Answer

In both "keep or drop" and "make or buy" decisions, managers should consider the benefits they could get from alternate uses of released capacity as an opportunity cost. This refers to the potential revenue or savings that could be gained by using the resources currently dedicated to the existing product or service in a different way. By choosing to keep or make a particular product or service, the company may be missing out on the opportunity to invest in a more profitable or strategic venture. Alternatively, dropping or buying a product or service could free up resources that can be redirected towards more promising opportunities. Therefore, the benefits from alternate uses of released capacity are a crucial factor that must be considered when making these types of decisions.

Question 3

When resources are constrained, managers are most likely to use the following method to develop decision making information
A) Simple or multiple regression
B) Analysis at the account level
C) Linear programming
D) High-low method

Accepted Answer

Linear programming is a method used for decision making in resource-constrained situations, as it helps in determining the best possible allocation of limited resources to achieve a given objective.

Question 4

Use the following data for the next 2 questions:
Amsat Company has equipment that is in high demand, but has a limited amount of time available. The equipment can be used to produce a number of different products. The following data are available: 
-Which product should be emphasized last?
A) L
B) M
C) N
D) O

Accepted Answer

The answer of Use the following data for the next...

Question 5

Use the following data for next 2 questions:
Tieton Co. has two departments, Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $ 20 and $15 for T and S respectively. T sells for $22 and S for $16.
-The objective function to maximize Tieton's profits is
A) MAX$22T+ $16S
B) MAX$20T+ $15S
C) MAX$1T + $2S
D) MAX$2T + $1S

Accepted Answer

The objective function to maximize profits is calculated by subtracting the variable costs from the selling price for each product. For product T, the profit is $22 - $20 = $2, and for product S, it is $16 - $15 = $1. Therefore, the objective function is MAX $2T + $1S.

Question 6

Use the following data for next 2 questions:
Tieton Co. has two departments, Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $ 20 and $15 for T and S respectively. T sells for $22 and S for $16.
-Flox Hill Consulting has its own printing department with the following annual costs:  The managers would like to outsource the printing function because it is not considered a core competency. The overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the printing department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the printing activities and coordinate all of the printing activities for the organization with the outside printing vendor. The maximum amount that Flox Hill is willing to pay an outside firm to replace the printing services is 
A) $820,000
B) $900,000
C) $700,000
D) $840,000

Accepted Answer

The answer of Use the following data for next 2...

Question 7

"Whether delivery timeliness is an important factor" is an example of a
A) Quantitative factor
B) Qualitative factor
C) Constrained resource
D) Cost driver

Accepted Answer

Delivery timeliness is a qualitative factor, as it relates to the quality of service provided rather than a measurable quantity.

Question 8

Managers relax constraints by I. Using constrained resources more effectively
II. Increasing available resources
III. Emphasizing the product with the highest contribution margin per unit
A) I only
B) II only
C) I and II only
D) I, II, and III

Accepted Answer

Managers can relax constraints by using constrained resources more effectively (I) and increasing available resources (II). Emphasizing the product with the highest contribution margin per unit (III) can help in decision making, but it does not directly relax constraints. Therefore, options (A) and (B) are not correct. Combining (I) and (II) can help in optimizing the use of resources available and maximizing profits. Hence, the correct option is (C) I and II only.

Question 9

Use the following data for next 2 questions:
Tieton Co. has two departments, Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $ 20 and $15 for T and S respectively. T sells for $22 and S for $16.
-The shadow price of a slack variable in a linear programming solution that maximizes the total contribution margin reflects
A) The amount of excess capacity available for the associated constraint
B) The decrease in contribution margin that occurs if a unit of the associated product is produced
C) The contribution margin returned by the firm's profitable product
D) The increase in contribution margin that would occur if another unit of the constrained resource were available

Accepted Answer

The shadow price of a slack variable reflects the increase in the objective function value that would occur if an additional unit of the constrained resource were available. In this case, since the problem is a maximization problem, the shadow price of the slack variable for either department represents the increase in total contribution margin that would result from an additional hour of capacity in that department.

Question 10

Which of the following is a relevant qualitative factor in a special order decision?
A) The cost of constrained resources
B) The effect of production processes on the political environment
C) The effect of production processes on the legal environment
D) How easily customers might share price information

Accepted Answer

Special order decisions often consider the potential for customers to share price information, which could affect future pricing strategies and customer expectations. This is a qualitative factor because it involves considerations beyond mere numerical analysis, focusing on customer behavior and market perception.

Question 11

Effect on brand name recognition is a qualitative factor that managers should consider in
A) Product line keep and drop decisions
B) Special order decisions
C) Cost prediction decisions
D) Make or buy decisions

Accepted Answer

The answer of Effect on brand name recognition is a...

Question 12

In a linear programming problem, slack resources are the same as
A) Idle capacity
B) Constraints
C) Limits on production
D) Mixed costs

Accepted Answer

Slack resources represent the unused or idle capacity of a resource, meaning that it is available for use without violating any constraints. Therefore, slack resources are the same as idle capacity. The other options are not necessarily equivalent to slack resources. Constraints limit the feasible region of a problem, limits on production may or may not be equivalent to slack resources depending on the problem, and mixed costs are a type of cost that includes both variable and fixed components.

Question 13

To ensure high quality in outsourcing decisions, organizations typically negotiate contracts with
A) A high margin for error
B) No uncertainties
C) Specific performance criteria
D) The lowest overall cost

Accepted Answer

To ensure high quality in outsourcing decisions, organizations typically negotiate contracts with specific performance criteria. This helps to ensure that the outsourcing provider understands what is expected of them and will strive to meet those requirements, leading to better quality outcomes for the organization. A high margin for error or no uncertainties may indicate a lack of clear expectations, and focusing only on the lowest overall cost may not necessarily lead to high quality outcomes.

Question 14

Use the following data for next 2 questions:
Tieton Co. has two departments, Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $ 20 and $15 for T and S respectively. T sells for $22 and S for $16.
-A company should always promote the product
A) With the highest per unit contribution margin
B) That results in the highest total contribution margin
C) With the lowest variable cost per unit
D) With the least waste

Accepted Answer

Promoting the product with the highest total contribution margin will generate the highest profit for the company. This is because the contribution margin is the difference between the selling price and variable costs, and promoting a product with a high contribution margin means that the company will earn more revenue per unit sold and incur lower variable costs per unit. In contrast, promoting a product with the highest per unit contribution margin or the lowest variable cost per unit may not necessarily result in the highest profits if the total volume of sales is low. Additionally, promoting a product with the least waste does not necessarily guarantee higher profits if that product does not have a high demand or generates low revenues.

Question 15

Why are qualitative factors often difficult to identify?
A) They are unimportant in decision making
B) No set formula provides assurance that managers have considered the correct issues
C) They are only important when a company operates internationally
D) Qualitative factors are not difficult to identify

Accepted Answer

Qualitative factors are often difficult to identify because there is no set formula or quantitative measurement that can ensure managers have considered all the relevant issues. These factors are often subjective and open to interpretation, making them more challenging to identify and measure than quantitative factors.

Question 16

In a special order decision, which of the following is most likely a qualitative factor that managers should consider?
A) Can we deliver without disrupting current schedules?
B) Will layoffs affect worker morale?
C) Does this order reflect our core competencies?
D) Will the decision affect future supply costs?

Accepted Answer

The answer of In a special order decision, which of...

Question 17

Which of the following is an opportunity cost that should be considered in an outsourcing decision?
A) Avoidable fixed costs
B) Benefits from alternate uses of released capacity
C) Unavoidable fixed costs
D) Employee morale

Accepted Answer

Opportunity cost is the value of the alternative use of a resource given up based on the decision taken. In outsourcing, a company gives up the use of its internal resources to perform a specific function in favor of using the resources of the outsourcing provider. The benefits that could have been realized from the alternate use of the released capacity represent an opportunity cost that must be considered in the outsourcing decision. Avoidable and unavoidable fixed costs are not relevant to opportunity cost considerations, and while employee morale is important, it is not an opportunity cost.

Question 18

Use the following data for the next 2 questions:
Amsat Company has equipment that is in high demand, but has a limited amount of time available. The equipment can be used to produce a number of different products. The following data are available: 
-Which product should be emphasized first?
A) L
B) M
C) N
D) O

Accepted Answer

The answer of Use the following data for the next...

Question 19

Use the following data for next 2 questions:
Tieton Co. has two departments, Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $ 20 and $15 for T and S respectively. T sells for $22 and S for $16.
-The constraints for Tieton's 2 departments are
A) 6T + 2S <= 24 AND 6T + 4S <= 18
B) 6T + 2S <= 18 AND 6T + 4S <= 24
C) 6T + 6S <= 24 AND 2T + 4S <= 18
D) 6T + 6S <= 18 AND 2T + 4S <= 24

Accepted Answer

The constraints are based on the available hours in each department. Fabrication has 24 hours, so 6T + 2S <= 24. Assembly has 18 hours, so 6T + 4S <= 18.

Question 20

When resources are constrained, managers should emphasize the product with the
A) Highest contribution margin per unit
B) Highest contribution margin per unit of constrained resource
C) Lowest average cost
D) Largest market share

Accepted Answer

When resources are constrained, it is important to maximize the use of those resources. Therefore, emphasizing the product with the highest contribution margin per unit of constrained resource would be the best choice as it would provide the greatest contribution to profits while efficiently using resources. Option A only considers the contribution margin per unit, which may not take into account the constraints, whereas options C and D are not directly relevant to maximizing profits under resource constraints.

Quiz 4: Relevant Costs for Nonroutine Operating Decision

If an organization cannot deliver goods or services quickly because of a constraint, managers might relax that constraint to

Managers should generally consider opportunity costs in both "keep or drop" and "make or buy" decisions. Which of the following is an opportunity cost they should consider in both situations?

When resources are constrained, managers are most likely to use the following method to develop decision making information

Use the following data for the next 2 questions: Amsat Company has equipment that is in high demand, but has a limited amount of time available. The equipment can be used to produce a number of different products. The following data are available: -Which product should be emphasized last?

"Whether delivery timeliness is an important factor" is an example of a

Managers relax constraints by I. Using constrained resources more effectively II. Increasing available resources III. Emphasizing the product with the highest contribution margin per unit

Which of the following is a relevant qualitative factor in a special order decision?

Effect on brand name recognition is a qualitative factor that managers should consider in

In a linear programming problem, slack resources are the same as

To ensure high quality in outsourcing decisions, organizations typically negotiate contracts with

Why are qualitative factors often difficult to identify?

In a special order decision, which of the following is most likely a qualitative factor that managers should consider?

Which of the following is an opportunity cost that should be considered in an outsourcing decision?

Use the following data for the next 2 questions: Amsat Company has equipment that is in high demand, but has a limited amount of time available. The equipment can be used to produce a number of different products. The following data are available: -Which product should be emphasized first?

When resources are constrained, managers should emphasize the product with the