Question 1

A small company makes only two products (X and Y), with the following production constraints representing two machines and their maximum availability:
2X + 3Y ≤ 18
2X + Y ≤ 10
X ≥ 0, Y ≥ 0
where: X = units of the first product, Y = units of the second product
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 feasible region is a quadrilateral with vertices at (0,0), (0,6), (5,0), and (3,4). The profit function is maximized at the vertex (3,4), where the profit is $4(3) + $2(4) = $20.

Question 2

Manders Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S):
Max Z = $30M + $70S
Where: 3M + 2S ≤ 15
2M + 4S ≤ 18
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 3

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

Accepted Answer

Sensitivity analysis in linear programming is used to determine whether and how the optimal decision would change in response to changes in the parameters in the model. By analyzing the impact of changes in the input parameters on the optimal solution and its associated values, decision-makers can acquire a greater understanding of the problem and make more informed decisions. Sensitivity analysis does not involve developing the technical matrix or objective function coefficients, which are determined during the formulation of the LP model. It also does not test the accuracy of the parameters in a model, which is done during the validation stage.

Question 4

Manders Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S):
Max Z = $30M + $70S
Where: 3M + 2S ≤ 15
2M + 4S ≤ 18
The point where M = 2 and S = 3 would:
A) Minimize total cost.
B) Minimize total variable cost.
C) Lie in a corner of a graphical representation of the model.
D) Be a feasible point.
E) Be the optimal solution point.

Accepted Answer

The point where M = 2 and S = 3 would be a feasible point as it satisfies both of the constraints given in the model. However, it is not possible to determine whether this point is the optimal solution point without solving the model or using additional information. Therefore, the correct choice is D.

Question 5

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is to use:
A) Relevant costing.
B) A value-stream analysis of the decision alternatives.
C) Simple regression (OLS) analysis.
D) Activity-based costing (ABC).
E) Linear programming (i.e., constrained optimization analysis).

Accepted Answer

Linear programming is the best choice to allocate scarce resources because it is a mathematical optimization technique that can help identify the most efficient way to allocate resources to achieve a specific objective, subject to constraints. It takes into account multiple decision variables and limitations and can optimize for both cost and revenue objectives. Therefore, it is the best tool to maximize operating income under resource constraints.

Question 6

Management accountants are frequently asked to analyze various decision situations including the following:

●	The cost of a special device that is necessary if a special order is accepted. 
●	The cost proposed annually for the plant service for the grounds at corporate headquarters. 
●	Joint production costs incurred, to be considered in a sell-or-process-further decision. 
●	The costs associated with alternative uses of plant space, to be considered in a make/buy decision. 
●	The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision.

The costs described in situations I and IV above are examples of:
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 7

Management accountants are frequently asked to analyze various decision situations including the following:
●	The cost of a special device that is necessary if a special order is accepted. 
●	The cost proposed annually for the plant service for the grounds at corporate headquarters. 
●	Joint production costs incurred, to be considered in a sell-or-process-further decision. 
●	The costs associated with alternative uses of plant space, to be considered in a make/buy decision. 
●	The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision. 
The costs described in situations III and V above are examples of:
A) Prime costs.
B) Sunk costs.
C) Discretionary costs.
D) Relevant costs.
E) Opportunity costs.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. In situations III and V, joint production costs and the cost of obsolete inventory are past costs that should not affect future decisions.

Question 8

Carter Inc. produces two products, A and B. Pertinent per-unit data follow: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 DLH. Assume that there are no avoidable fixed factory overhead costs.
Required:
1. Calculate the unit contribution margin for each of the two products.
2. Determine which product should be produced in priority, given the labor constraint, and explain why.

Accepted Answer

The answer of Carter Inc. produces two products, A and...

Question 9

The shadow price in a linear programming model is:
A) Interesting from a mathematical or economic theory standpoint, but not generally useful from an accounting standpoint.
B) Equal to the current market price for an additional unit of the related resource.
C) The maximum price a rational decision-maker 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 10

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

Accepted Answer

Absorption (that is, full product) cost will include fixed manufacturing overhead, which would not change with the acceptance or rejection of a one-time-only special order. Therefore, it would not be relevant to the decision in situations where there is sufficient capacity. Differential costs, direct costs, variable costs, and incremental costs are all relevant because they would change based on the acceptance or rejection of the special order.

Question 11

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: TThe proposed production schedule 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 12

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:If Quinta produces part QR128, there would also be incremental fixed costs of $13,000 per period. Should Quinta Inc. accept the offer from the subcontractor?

Accepted Answer

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

Question 13

The Multi Resource Company manufactures two lines of washing machines, Regular and Deluxe. The contribution margin per unit 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. Based on this information, 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 14

Harrington Corporation produces three products, A, B, and C. Pertinent information on these products is as follows:There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only; 50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the capacity.
The machine-hour constraint for Harrington's linear programming model 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 answer of Harrington Corporation produces three products, A, B,...

Question 15

Copeland Inc. produces product X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade (i.e., further process) 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

When making the upgrade decision, we need to consider all costs and revenues associated with selling X-547 or upgrading it into Xylene. This includes the selling price of X-547, the variable manufacturing costs of the upgrade process, the avoidable fixed costs of the upgrade process, and the selling price of Xylene. Additionally, we need to consider the joint manufacturing costs to produce X-547, as this cost has already been incurred and will impact the overall profitability of upgrading the product. Therefore, items 1, 2, 3, and 4 should be reviewed when making the upgrade decision. Item 5 is also important, but it is a sunk cost and should not affect the decision making.

Question 16

Which one of the following is most relevant to an equipment-replacement decision (assume no tax effects) used in a trade or business? 
A) Original cost of the old equipment.
B) Current 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 current disposal (salvage) value of the old equipment is most relevant to an equipment-replacement decision because it represents the actual cash inflow or savings that would be realized from disposing of the old equipment, which directly impacts the analysis of whether to replace the equipment.

Question 17

Harrington Corporation produces three products, A, B, and C. Pertinent information on these products is as follows:There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only; 50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the capacity.
The direct labor hour constraint for Harrington's linear programming model 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 answer of Harrington Corporation produces three products, A, B,...

Question 18

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 total price of $190,000. If Quinta does not purchase these parts from the subcontractor it must produce them in-house with the following costs: If Quinta produces part QR128 internally, there would be an incremental (and ongoing) overhead cost of $13,000. Calculate the total relevant costs of producing 2,800 units of product QR128.

Accepted Answer

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

Question 19

Harrington Corporation produces three products, A, B, and C. Pertinent information on these products is as follows:The objective function for a linear program to maximize contribution margin from the set of three products is:
A) Z = $3A + $3B + $4C.
B) Z = $3A + $2.50B + $5C.
C) Z = $4A + $3.50B + $6C.
D) Z = A + B + C.
E) Z = A + $0.50B + $2C.

Accepted Answer

The answer of Harrington Corporation produces three products, A, B,...

Question 20

Manders Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S):
Max Z = $30M + $70S
Where: 3M + 2S ≤ 15
2M + 4S ≤ 18
The two inequality functions in the above set of items represent:
A) Contribution margin functions.
B) Shadow points.
C) Objective function coefficients.
D) Resource constraints.
E) Sensitivity functions.

Accepted Answer

The two inequality functions represent resource constraints, as they limit the amount of metal and scrap metal that can be used and therefore constrain the production process. The objective function is to maximize Z, which represents the total profit from the product mix. The other options (A, B, C, and E) do not accurately describe the two inequality functions.

Quiz 11: Decision Making With a Strategic Emphasis

Manders Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S) : Max Z = $30M + $70S Where: 3M + 2S ≤ 15 2M + 4S ≤ 18 The above mathematical functions together constitute a(n) :

Sensitivity analysis in linear programming is used to:

Manders Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S) : Max Z = $30M + $70S Where: 3M + 2S ≤ 15 2M + 4S ≤ 18 The point where M = 2 and S = 3 would:

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

The shadow price in a linear programming model is:

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

Which one of the following is most relevant to an equipment-replacement decision (assume no tax effects) used in a trade or business?

Harrington Corporation produces three products, A, B, and C. Pertinent information on these products is as follows:The objective function for a linear program to maximize contribution margin from the set of three products is:

Manders Manufacturing Corporation uses the following model to determine an optimal short-term product mix for its two products, metal (M) and scrap metal (S) : Max Z = $30M + $70S Where: 3M + 2S ≤ 15 2M + 4S ≤ 18 The two inequality functions in the above set of items represent: