Question 1

Which one of the following is most relevant to a manufacturing equipment-replacement decision?
A)Original cost of the old equipment.
B)Disposal (salvage) value of the old equipment.
C)Gain or loss on the disposal of the old equipment.
D)Original cost less accumulated depreciation of the old equipment.
E)A lump-sum write-off amount from the disposal of the old equipment.

Accepted Answer

The answer of Which one of the following is most...

Question 2

The direct labor-hour constraint for Harrington's linear program is:
A)A + B + C ≤ 150.
B)Min Z = 2A + 2B + 3C.
C)Max Z = 2A + 2B + 3C - 150.
D)100A + 50B + 40C ≤ 1,050.
E)2A + 2B + 3C ≤ 150.

Accepted Answer

The direct labor-hour constraint is the limitation on the total amount of hours of direct labor that can be used in the production process. This constraint is represented by the equation 2A + 2B + 3C ≤ 150 in Harrington's linear program. Therefore, the best choice is E.

Question 3

Quinta Inc. manufactures machine parts for aircraft engines. The CEO is considering an offer from a subcontractor who would provide 2,800 units of product QR128 for a price of $190,000. If Quinta does not purchase these parts from the subcontractor it must produce them in-house with the following costs:  In addition to the above costs, if Quinta produces part QR128, there would also be a retooling and design cost of $13,000. Should Quinta Inc. accept the offer from the subcontractor?

Accepted Answer

The answer of Quinta Inc. manufactures machine parts for aircraft...

Question 4

The point where M = 2 and S = 3 would:
A)Minimize total cost.
B)Minimize total variable cost.
C)Lie in a corner.
D)Be a feasible point.
E)Be the optimal solution point.

Accepted Answer

A feasible point is one that satisfies all the constraints of the problem. Here, M=2 and S=3 satisfy the constraints of the problem, so it is a feasible point. However, without knowing the objective function and the specific constraints of the problem, we cannot determine if it is the optimal solution or not. Therefore, D is the best choice.

Question 5

Southern Company packages and sells nuts in cans. Pecans, cashews, Brazil nuts, hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Southern wants to package the nuts so that it can maximize its operating profit while considering market demand. In addition, there are limited supplies for some types of nuts. The technique that Southern should employ is:
A)Statistical analysis.
B)Correlation and regression analysis.
C)Discounted cash flow (DCF) analysis.
D)Transportation algorithms.
E)Linear programming.

Accepted Answer

Southern Company needs to maximize its profit while taking into consideration market demand and limited supplies. Linear programming is the technique that can help achieve this objective. With linear programming, Southern Company can determine the optimal combination of nuts to package based on demand, supply, and profitability. This method also considers constraints related to the limited supplies of nuts. Therefore, linear programming is the best choice of technique for Southern Company to use.

Question 6

The machine-hour constraint for Harrington's linear program is:
A)The same as the labor-hour constraint.
B)A + 2B + 2.5C ≤ 100.
C)Indeterminable from the data given.
D)A + B + C ≤ 190.
E)100A + 50B + 40C ≤ 19,000.

Accepted Answer

The machine-hour constraint is given by the expression A + 2B + 2.5C ≤ 100. This is because the production time per unit for product A is 1 hour, for product B it is 0.5 hour, and for product C it is 0.4 hour. Therefore, the total production time in machine-hours for one unit of each product is A + 2B + 2.5C. The constraint is set at a maximum of 100 machine-hours, which means that the total production time for all three products cannot exceed 100 machine-hours.

Question 7

The two inequality functions above are:
A)Contribution margin functions.
B)Shadow points.
C)Objective function coefficients.
D)Resource constraints.
E)Sensitivity functions.

Accepted Answer

The two inequality functions above represent resource constraints because they limit the amount of a resource (e.g. labor hours or materials) that can be used in the production process. Contribution margin functions represent the profit earned from each unit sold, shadow points are the intersection of two constraint lines, objective function coefficients represent the value of each variable in the objective function, and sensitivity functions measure how much the optimal solution changes with respect to changes in the problem's parameters.

Question 8

The following unit cost information pertained to the trumpet division of WGN Music Co. and was based on monthly demand and sales of 100 units:  Assume that the Trumpet Division was evaluating whether or not it would accept a special order for ten trumpets at $500 per unit.
Required:
1. Calculate total relevant cost per unit.
2. Should WGN accept the special order; why or why not?

Accepted Answer

The answer of The following unit cost information pertained to...

Question 9

In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision?
A)Absorption costs.
B)Differential costs.
C)Direct costs.
D)Variable costs.
E)Incremental costs.

Accepted Answer

Absorption costs are not relevant in this decision because they allocate fixed overhead costs to products based on activity levels, and idle capacity means that these costs have already been incurred and will not be affected by the decision to accept or reject a one-time special order. The relevant costs in this decision are the differential, direct, variable, and incremental costs.

Question 10

The above mathematical functions together constitute a(n):
A)Simulation model.
B)Linear programming model.
C)Economic order quantity model.
D)Multivariate regression model.
E)Nonlinear optimization model.

Accepted Answer

The given model is a linear programming model as it involves maximizing a linear objective function subject to linear constraints.

Question 11

Sensitivity analysis in linear programming is used to:
A)Determine the degree that the constraints vary.
B)Test the accuracy of the parameters.
C)Develop the technical matrix.
D)Determine how the optimal decision would react to changes in parameters.
E)Develop objective function coefficients.

Accepted Answer

Sensitivity analysis in linear programming helps in determining how the optimal decision would react to changes in parameters. This would help in evaluating the robustness of the optimal solution and in making decisions under uncertain conditions.

Question 12

The costs described in situations I and IV above are:
A)Prime costs.
B)Sunk costs.
C)Discretionary costs.
D)Relevant costs.
E)Opportunity costs.

Accepted Answer

The costs described in situations I and IV are relevant costs, meaning they are costs that will be affected by a specific decision and should be taken into consideration when making that decision. Prime costs refer to direct materials and labor, sunk costs are costs that have already been incurred and cannot be recovered, discretionary costs are optional and can be adjusted as needed, and opportunity costs are the benefits foregone by choosing one option over another.

Question 13

A small company makes only two products with the following production constraints representing two machines and their maximum availability:  If the profit equation is Z = $4X + $2Y, the maximum possible profit is:
A)$20
B)$21
C)$18
D)$24
E)$14

Accepted Answer

The answer of A small company makes only two products...

Question 14

There is insufficient labor capacity in the plant to meet the combined demand for both products. Both products are produced through the same production departments. The fixed factory overhead rate is $10 per direct labor hour.
Required:
1. Calculate the unit contribution margin for each product.
2. Determine which product should be produced in priority, given the labor constraint, and explain why.arter Inc. produces two products, A and

Accepted Answer

The answer of  There is insufficient labor capacity in...

Question 15

The shadow price in a linear programming model is:
A)Interesting from a mathematical standpoint, but not useful from an accounting standpoint.
B)Equal to the current market price for an additional unit of the related resource.
C)The price one would be willing to pay for an additional unit of the scarce resource.
D)Greater than the market price for the related resource.
E)Zero for a binding constraint.

Accepted Answer

The shadow price represents the maximum value that a decision-maker would be willing to pay for an additional unit of a scarce resource in order to increase the objective function value. Therefore, option C is the correct answer. Option A is incorrect because the shadow price can be useful in determining the value of a resource in a market. Option B is incorrect because the shadow price is not necessarily equal to the current market price, as it reflects the impact of the scarce resource on the objective function. Option D is incorrect because the shadow price can be equal to or less than the market price. Option E is incorrect because a binding constraint has a positive shadow price.

Question 16

The Multi Resource Company manufactures two lines of washing machines, Regular and Deluxe. The contribution margin of a Regular model is $110 and for Deluxe Model is $175. The company has two departments, Assembly and Testing. The Regular Model requires 3 hours to assemble, while a Deluxe Model requires 4 hours. The total time available in Assembly is 12,000 hours. In the Testing Department, it requires 2.5 hours to test a Regular Model and 1.5 hours to test a Deluxe Model. A total of 6,000 hours of testing time is available. The optimum production plan for Multi Resource is:
A)2,400 Regular Models
B)3,000 Deluxe Models
C)1,091 Regular Models and 2,182 Deluxe Models
D)4,000 Deluxe Models
E)4,000 Regular Models

Accepted Answer

The answer of The Multi Resource Company manufactures two lines...

Question 17

Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: (1) Selling price per pound of X-547.
(2) Variable manufacturing costs of the upgrade process.
(3) Avoidable fixed costs of the upgrade process.
(4) Selling price per pound of Xylene.
(5) Joint manufacturing costs to produce X-547.
Which of the items should be reviewed when making the upgrade decision?
A)1, 2, and 4
B)1, 2, 3, and 4
C)1, 2, 3, 4, and 5
D)1, 2, 4, and 5
E)2, 3

Accepted Answer

All the given items should be reviewed when making the upgrade decision. The selling price per pound of X-547 and Xylene are both relevant as they help determine the potential revenue of the two options. The variable manufacturing costs of the upgrade process and the avoidable fixed costs of the upgrade process are necessary to determine the cost of upgrading to Xylene. Finally, the joint manufacturing costs to produce X-547 are required to understand the total costs incurred before the decision to upgrade or sell at the split-off point. Therefore, options A, C, D, and E are incorrect as they exclude one or more necessary pieces of information.

Question 18

Apex Manufacturing Corporation is considering a significant shift in the mix of products it manufactures. The costs associated with current and proposed production schedules are shown below by category:  The proposed production will require a one-time purchase of equipment costing $180,000. No change in selling or administrative cost from their present levels is expected.
Required:
1. What type of relevant cost analysis would be appropriate in this situation (special order, make-lease-buy, etc.)? Why?
2. What role does depreciation and equipment purchase cost play in this decision?
3. What is the minimum amount that revenue would have to increase per month to justify the proposed production schedule? Ignore taxes and the time value of money

Accepted Answer

The answer of Apex Manufacturing Corporation is considering a significant...

Question 19

The cost described in situations III and V above are:
A)Prime costs.
B)Sunk costs.
C)Discretionary costs.
D)Relevant costs.
E)Opportunity costs.

Accepted Answer

The answer of The cost described in situations III and...

Question 20

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is:
A)Relevant costing.
B)Responsibility accounting.
C)Simple regression (OLS) analysis.
D)Operations management.
E)Linear programming.

Accepted Answer

Linear programming is a mathematical technique used to allocate scarce resources to achieve a specific objective while optimizing constraints. It helps in finding the optimal solution among the available options, considering the limitations of resources. In this case, the objective is to maximize operating income while keeping in mind the constraints of scarce resources. Linear programming can help in identifying the optimal mix of resources needed to achieve the objective, making it the best choice in this scenario.

Quiz 11: Decision Making With a Strategic Emphasis

Which one of the following is most relevant to a manufacturing equipment-replacement decision?

The direct labor-hour constraint for Harrington's linear program is:

The point where M = 2 and S = 3 would:

The machine-hour constraint for Harrington's linear program is:

The two inequality functions above are:

In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision?

The above mathematical functions together constitute a(n) :

Sensitivity analysis in linear programming is used to:

The costs described in situations I and IV above are:

A small company makes only two products with the following production constraints representing two machines and their maximum availability: If the profit equation is Z = $4X + $2Y, the maximum possible profit is:

The shadow price in a linear programming model is:

The cost described in situations III and V above are:

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is: