Question 1

Information about three joint products follows:  The cost of the joint process is $140,000. Which of the joint products should be processed further?
A) X.
B) Y.
C) Z.
D) Both X and Y.

Accepted Answer

To determine which joint product should be processed further, we need to compare their incremental revenue (additional revenue from further processing) to their incremental processing costs. 
For product X, the incremental revenue is $150,000 - $100,000 = $50,000, but the incremental processing cost is $50,000, so there is no additional profit from further processing.
For product Y, the incremental revenue is $90,000 - $60,000 = $30,000, and the incremental processing cost is $30,000, so there is also no additional profit from further processing.
For product Z, the incremental revenue is $80,000 - $50,000 = $30,000, but the incremental processing cost is only $10,000, so there is an additional profit of $20,000 from further processing. Therefore, product Z should be processed further.

Question 2

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
  ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-2. Should ColorPro make or buy the part?
A) Make the part because it will save $100,000 over buying it.
B) Buy the part because it will save $100,000 over making it.
C) Make the part because it will save $1,100,000 over buying it.
D) Buy the part because it will save 1,100,000 over making it.
E) Buy the part because it will save $300,000 over making it.

Accepted Answer

Making the part will save $100,000 over buying it.

Question 3

The solution of the product mix problem in the presence of multiple constraints requires the use of
A) linear programming.
B) relevant costing.
C) differential costing.
D) excel programming.
E) contribution margin per unit of scarce resource.

Accepted Answer

The product mix problem with multiple constraints involves optimizing the production of multiple products to maximize profits subject to constraints such as limited resources, time, and capacity. Linear programming is a mathematical tool that helps solve such problems by finding the optimal value of decision variables that satisfy the constraints. Therefore, option A is the best choice to solve the product mix problem in the presence of multiple constraints.

Question 4

When managers are considering the optimal product mix, they are most concerned with
A) maximizing revenue.
B) minimizing cost.
C) maximizing profit.
D) minimizing selling and administrative expense.
E) balancing productive capacity.

Accepted Answer

Managers are ultimately concerned with maximizing profit, as this takes into account both revenue and cost considerations. While minimizing cost and selling/administrative expenses are also important, they are not the primary concern when considering product mix. Balancing productive capacity is important, but it is more of an operational concern than a strategic one when it comes to product mix decisions.

Question 5

Figure 13-8. Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs. Currently, Kerrigan sells the rough logs for $75 each. Kerrigan is considering processing the logs further into refined lumber. Each log can be processed into 200 feet of refined lumber at an additional cost of $0.40 per foot. The refined lumber can be sold for $0.95 per foot.
-Refer to Figure 13-8. Should Kerrigan process the rough logs into refined lumber?
A) Yes, income will increase by $35 per log.
B) Yes, income will increase by $110 per log.
C) Yes, income will increase by $75 per log.
D) No, income will decrease by $35 per log.
E) No, income will decrease by $110 per log.

Accepted Answer

The additional revenue from processing each log into refined lumber is $190 (200 feet x $0.95), and the additional cost is $80 (200 feet x $0.40). The net increase in income per log is $110 ($190 - $80), which means the income will increase by $35 per log compared to selling the rough logs for $75.

Question 6

Refer to Figure 13-3. Assuming that specialized molding equipment time is the only constrained resource, and that EBP can sell as many tubs and sinks as it can produce, how many sinks should be sold?
A) 2,050
B) 2,025
C) 0
D) 4,050
E) 810

Accepted Answer

From the graph, we can see that the total time required to produce 1 sink is 3 hours and the total time required to produce 1 tub is 2 hours. Therefore, the production time required per sink is greater than the production time required per tub.

Since specialized molding equipment time is the only constrained resource, we should prioritize producing the product that requires less time, which is the tub. We can produce a maximum of 2,025 tubs in 4,050 hours (the total time available for specialized molding equipment).

Therefore, the number of sinks that should be sold is 0, as we should produce only tubs to maximize revenue.

Question 7

Figure 13-8. Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs. Currently, Kerrigan sells the rough logs for $75 each. Kerrigan is considering processing the logs further into refined lumber. Each log can be processed into 200 feet of refined lumber at an additional cost of $0.40 per foot. The refined lumber can be sold for $0.95 per foot.
-Refer to Figure 13-8. Assume that the cost of getting the 12,000 large trees falls by half. Should Kerrigan sell the rough logs at split-off or process it further?
A) Process further, the reduction in the cost of trees makes that option more profitable than it was before.
B) Sell at split-off because the decrease in the cost of the trees makes that option more profitable than it was before.
C) Sell at split-off, the reduction in the cost of the trees is irrelevant.
D) Process further, the reduction in the cost of the trees will lower further processing costs.
E) Process further because the reduction in the cost of the trees is irrelevant.

Accepted Answer

The decision to process further or sell at split-off should be based on the incremental profit from further processing, which is unaffected by the cost of acquiring the trees.

Question 8

Refer to Figure 13-3. What is the contribution margin per hour of specialized molding equipment time for sinks?
A) $35
B) $33.33
C) $70
D) $200
E) $68.33

Accepted Answer

The answer of Refer to Figure 13-3. What is the...

Question 9

Refer to Figure 13-4. What is the contribution margin per hour of machine time for a fancy lamp?
A) $21
B) $42
C) $13
D) $8
E) $6

Accepted Answer

Contribution margin per unit of fancy lamp = Selling price - Variable cost = $75 - $40 = $35
Machine time required to produce one fancy lamp = 0.5 hour
Contribution margin per hour of machine time = Contribution margin per unit ÷ Machine time per unit = $35 ÷ 0.5 = $70
Therefore, the contribution margin per hour of machine time for a fancy lamp is $70. This means that producing a fancy lamp contributes $70 towards fixed costs per hour of machine time. Among the given options, the best choice would be to produce fancy lamps as it has the highest contribution margin per hour of machine time.

Question 10

A decision that involves potential further processing of joint products is which kind of decision?
A) relevant
B) make-or-buy
C) sell-or-process-further
D) special-order
E) keep-or-drop

Accepted Answer

The decision that involves potential further processing of joint products is the sell-or-process-further decision. This decision requires a company to decide whether to sell the joint products at the split-off point or to process them further into different products. Therefore, C is the best choice as it specifically relates to this type of decision.

Question 11

Refer to Figure 13-3. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?
A) 1,000
B) 500
C) 410
D) 675
E) 0

Accepted Answer

To determine the optimal production quantities, we need to find the point where the marginal revenue equals the marginal cost for each product. Looking at the graph, we see that this occurs at a quantity of 590 for sinks and 410 for tubs. Therefore, EBP should produce 410 tubs.

Question 12

Limited resources and limited demand for a product are generally referred to as
A) resources.
B) problems.
C) constraints.
D) optima.
E) contribution factors.

Accepted Answer

Limited resources and limited demand for a product are considered constraints as they limit the options available for production and sales.

Question 13

Refer to Figure 13-3. What is the contribution margin per hour of specialized molding time for tubs?
A) $35
B) $68.33
C) $70
D) $200
E) $30

Accepted Answer

The answer of Refer to Figure 13-3. What is the...

Question 14

Figure 13-7.Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows:
 
-Refer to Figure 13-7. Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring. Should Ring purchase the part from the outside supplier?
A) No, income will decrease by $71,500.
B) No, income will decrease by $15,000.
C) Yes, income will increase by $74,500.
D) No, income will decrease by $10,500.
E) Yes, income will increase by $10,500.

Accepted Answer

If 30% of the fixed overhead is avoidable, then $6,000 (30% of $20,000) of the fixed overhead would not be incurred if part X76 is not made by Ring. The original analysis without considering the avoidable fixed costs showed that making the part is cheaper by $10,500 than buying it. If you avoid $6,000 in costs by not making the part, the total savings by making the part instead of buying it decreases to $4,500 ($10,500 - $6,000). However, this question's correct answer mistakenly assumes that avoiding $6,000 in costs would lead to a decrease in income if the part is purchased, which is not directly supported by the provided choices. The correct approach should compare the cost of making versus buying, including the savings from avoiding some fixed costs. The provided choices do not accurately reflect this calculation, leading to confusion. The explanation intended to highlight the importance of considering avoidable costs in make-or-buy decisions, but the specific numerical answer given does not align with the typical outcome of such an analysis.

Question 15

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
  ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-6. What is Autry's profit from refining one batch of dactylyte if both dac and tyl are sold at the split-off point?
A) $6,000
B) $12,000
C) $7,000
D) $18,000
E) $15,000

Accepted Answer

The profit from refining one batch of dactylyte is calculated by subtracting the total costs from the revenue at the split-off point. If the revenue from selling both dac and tyl at the split-off point is $30,000 and the cost of refining is $24,000, the profit is $6,000.

Question 16

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
  ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-2. Now suppose that ColorPro discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally. Should ColorPro make or buy the part?
A) Make the part because it will save $100,000 over buying it.
B) Buy the part because it will save $100,000 over making it.
C) Make the part because it will save $107,000 over buying it.
D) Buy the part because it will save $107,000 over making it.
E) Make the part because it will save $10,000 over buying it.

Accepted Answer

The additional costs of $7,000 per year for buying the part will reduce the savings from buying the part to $100,000 - $7,000 = $93,000. Since the savings from making the part are $107,000, ColorPro should make the part.

Question 17

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
  ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-6. Should Autry process dac further?
A) No, income will be $1,500 lower.
B) No, income will be $5,000 lower.
C) Yes, income will be $1,500 higher.
D) Yes, income will be $5,000 higher.
E) It doesn't matter; income will be the same.

Accepted Answer

The answer of Figure 13-2. ColorPro uses part 87A in...

Question 18

Figure 13-7.Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows:
 
-Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier?
A) Yes, income will increase by $104,500.
B) No, income will decrease by $104,500.
C) Yes, income will increase by $78,500.
D) Yes, income will increase by $95,500.
E) Yes, income will increase by $137,500.

Accepted Answer

Since the fixed overhead is unavoidable, the relevant costs are the variable costs. If the cost of purchasing the part from the supplier is higher than the variable cost of making it, income will decrease.

Question 19

Figure 13-2. ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
  ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.
-Refer to Figure 13-2. Which of the following is a qualitative factor that might affect ColorPro's decision?
A) Filbert has an outstanding reputation for quality.
B) Ordering from Filbert would give ColorPro a chance to see how well Filbert could meet JIT standards for ColorPro's other products.
C) Filbert is known for the reliability of its products.
D) Making the part in-house would help ColorPro avoid layoffs of direct and indirect labor.
E) All of these.

Accepted Answer

All the options listed (A, B, C, D) are qualitative factors because they involve subjective or judgment-based considerations that can affect ColorPro's decision, such as reputation, opportunity to test JIT standards, reliability, and employment impacts, rather than purely quantitative or numerical factors.

Question 20

Refer to Figure 13-4. What is the contribution margin per hour of machine time for a classic lamp?
A) $26
B) $104
C) $16
D) $65
E) $13

Accepted Answer

The answer of Refer to Figure 13-4. What is the...

Quiz 13: Short-Run Decision Making: Relevant Costing

Information about three joint products follows: The cost of the joint process is $140,000. Which of the joint products should be processed further?

The solution of the product mix problem in the presence of multiple constraints requires the use of

When managers are considering the optimal product mix, they are most concerned with

Refer to Figure 13-3. Assuming that specialized molding equipment time is the only constrained resource, and that EBP can sell as many tubs and sinks as it can produce, how many sinks should be sold?

Refer to Figure 13-3. What is the contribution margin per hour of specialized molding equipment time for sinks?

Refer to Figure 13-4. What is the contribution margin per hour of machine time for a fancy lamp?

A decision that involves potential further processing of joint products is which kind of decision?

Refer to Figure 13-3. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?

Limited resources and limited demand for a product are generally referred to as

Refer to Figure 13-3. What is the contribution margin per hour of specialized molding time for tubs?

Refer to Figure 13-4. What is the contribution margin per hour of machine time for a classic lamp?