Question 1

Cheong Automobiles Company fabricates inexpensive automobiles for sale to third world countries.Each vehicle includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:  A factory in Indonesia has offered to supply Cheong with ready-made units for a price of $14 per wiring harness.Assume that Cheong's fixed costs could be reduced by $5,000 if they outsource,and that Cheong will not be able to use the excess capacity in any profitable manner.What will be the impact Cheong's monthly operating income,if Cheong decides to outsource?

Accepted Answer

11ea84d1_1190_6b4a_83dc_57b06b97262a_TB3006_00

Question 2

A company produces 100 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each.Currently,the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month.Assume the fixed costs are unavoidable,but that company could employ the vacated premises to earn rental income of $700 per month.How will it affect monthly operating income,if the company outsources?

Accepted Answer

11ea84d1_1190_b970_83dc_f9c9ac7050f5_TB3006_00

Question 3

Verdant Avionics makes aircraft instrumentation.Their basic navigation radio requires $120 in variable costs and requires $3,000 per month in fixed costs.If they process the radio further to enhance its functionality,it will require an additional $40 per unit of variable costs,and $300 per month in fixed costs.The marketing manager believes they would be able to boost their price of the radio from $260 to $280.In making this decision,the amount of additional fixed costs per month is a relevant piece of information.

Accepted Answer

The amount of additional fixed costs per month for enhancing the radio's functionality is relevant because it will affect the overall profitability of the decision to boost the price.

Question 4

________ refer to the value forgone in order to make one particular investment instead of another.

Accepted Answer

Opportunity costs refer to the value forgone in order to make one particular investment instead of another. Sunk costs are costs that have already been incurred and cannot be recovered. Relevant costs are costs that are directly related to a decision and will change depending on the choice made. Irrelevant costs are costs that will not be affected by a particular decision.

Question 5

A chemical company spent $530,000 to produce 150,000 gallons of a chemical which can be sold for $5.20 per gallon.The chemical can be further processed into a weed killer which can be sold for $7.20 per gallon; it will cost $270,000 to process the chemical into a weed killer.Which of the following is true?

Accepted Answer

11ea84d1_118f_f615_83dc_f9ab7aa50ed7_TB3006_00 Increase in operating income on account of further processing $30,000 ($280,000 - $250,000).

Question 6

Lightning Semiconductors produces 400,000 hi-tech computer chips per month.Each chip uses a component which Lightning makes in-house.The variable costs to make the component are $1.20 per unit,and the fixed costs run $1,200,000 per month.The company has been approached by a foreign producer who can supply the component,ready-made and with acceptable quality standards for $1.10 each.If the company chooses to outsource,it could reduce the fixed costs by 40%.The company does not have any other use for the facilities currently employed in making the component.What is the effect on operating income,if the company decides to outsource?

Accepted Answer

The variable cost of making the component in-house is $1.20 per unit, and the fixed costs are $1,200,000 per month. The company produces 400,000 chips per month, so the total cost of making the components in-house is $1.20 * 400,000 + $1,200,000 = $1,680,000.If the company outsources the components, it will pay $1.10 per unit for 400,000 units, which will cost $440,000. The fixed costs will be reduced by 40%, which will save the company $1,200,000 * 0.40 = $480,000.Therefore, the total cost of outsourcing the components will be $440,000 + $480,000 = $920,000. This is $1,680,000 - $920,000 = $760,000 less than the cost of making the components in-house.The operating income will increase by $760,000 if the company outsources the components.

Question 7

A company produces 100 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each.Currently,the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month.Assume the company could not reduce any fixed costs by outsourcing,and that there is no alternative use for the facilities presently being used to make circuits.How will it affect monthly operating income,if the company outsources?

Accepted Answer

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Question 8

The benefit foregone by not choosing an alternative course of action is referred to as a(n):

Accepted Answer

The benefit foregone is the essence of opportunity cost, which is the benefit that a person could have received, but gave up, to take another action.

Question 9

Gnome Company is trying to decide whether to continue to manufacture a particular component or to buy the component from a supplier.Which of the following is relevant to this decision?

Accepted Answer

The answer of Gnome Company is trying to decide whether...

Question 10

Wing Company makes a special kind of racing tire.Variable costs are $320,and fixed costs are $35,000 per month.Wing sells 600 units per month at a price of $400.If Wing upgrades the quality of the tire,they believe they can boost the price to $450.If so,the variable cost will go up to $350 and the fixed costs will rise by 30%.The CEO wishes to increase his operating income by 20%.If the company decides to upgrade the product according to the data above,the CEO will reach his goal.

Accepted Answer

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Question 11

Valuable Electronics uses a standard part in the manufacture of different types of radios manufactured by it The total cost of producing 25,000 parts is $95,000,which includes fixed costs of $40,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $3 per unit,and avoid 20% of the fixed costs.Assume that free factory space can be used to manufacture another product that can earn profit of $15,000.If Valuable outsources,what will be the effect on operating income?

Accepted Answer

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Question 12

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

Accepted Answer

The unavoidable fixed manufacturing costs associated with the manufacture of the component are a relevant factor in the decision between manufacturing or buying the component. The cost comparison between the two options should include these fixed costs. The quality of the component purchased, the supplier's ability to deliver on time, and alternative uses of facilities are all relevant factors in the decision.

Question 13

A company produces 100 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each.Currently,the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month.Assume the company could cut fixed costs in half by outsourcing,and that there is no alternative use for the facilities presently being used to make circuits.How will it affect monthly operating income,if the company outsources?

Accepted Answer

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Question 14

CM Manufacturing has provided the following unit costs pertaining to a component they manufacture and use in the production of one of their main products:  A supplier has offered to provide the component to CM Manufacturing for $630 per unit.If CM Manufacturing acquire the component from the supplier,they could use the released facilities to manufacture a product which would generate contribution margin of $20,000 annually.Assuming that CM Manufacturing needs 3,000 components annually and the fixed manufacturing overhead is unavoidable,what would be the impact on operating income if the company outsources?

Accepted Answer

The answer of CM Manufacturing has provided the following unit...

Question 15

Lightning Semiconductors produces 400,000 hi-tech computer chips per month.Each chip uses a component which Lightning makes in-house.The variable costs to make the component are $1.20 per unit,and the fixed costs run to $1,200,000 per month.The company has been approached by a foreign producer who can supply the component,ready-made and with acceptable quality standards for $1.10 each.The fixed costs are unavoidable,and Lightning would have no other use for the facilities currently employed in making the component.What is the effect on operating income,if the company decides to outsource?

Accepted Answer

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Question 16

A company produces 100 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each.Currently,the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month.Assume the company could eliminate all fixed costs by outsourcing,and that there is no alternative use for the facilities presently being used to make circuits.How will it affect monthly operating income,if the company outsources?

Accepted Answer

11ea84d1_1190_b96f_83dc_39df6c925345_TB3006_00

Question 17

Cheong Automobiles Company fabricates inexpensive automobiles for sale to third world countries.Each vehicle includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
  A factory in Indonesia has offered to supply Cheong with ready-made units for a price of $14 per wiring harness.Assume that Cheong 's fixed costs are unavoidable,but that Cheong could use the vacated production facilities to earn an additional $7,500 of profit per month.What will be the impact on Cheong 's monthly operating income,if Cheong decides to outsource?

Accepted Answer

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Question 18

Which of the following phrases most accurately describe opportunity cost?

Accepted Answer

Opportunity cost refers to the benefits that are given up when choosing one option over another. It is the cost of the next best alternative forgone. Option A describes a cost incurred to gain an opportunity, which is not necessarily the same as the opportunity cost. Option B describes the benefit gained from a chosen course of action, which is also not the same as the opportunity cost. Option D refers to sunk costs, which are costs that have already been incurred and are not recoverable.

Question 19

Seven Seas Sailboats Company manufactures 100 luxury yachts per month.A compact media center is included in each yacht.Seven Seas Sailboats manufactures the media center in-house.The company is considering the possibility of outsourcing the production of media center in order to close down some of its facilities and reduce administrative costs.At present,the variable cost per unit is $275 and fixed costs are $39,000 per month.Assuming if the company outsources the production of media center,and the fixed costs could be eliminated entirely,at what contract rate would outsourcing pay off for Seven Seas? (Round to nearest whole dollar.)

Accepted Answer

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Question 20

Cheong Automobiles Company fabricates inexpensive automobiles for sale to third world countries.Each vehicle includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:  A factory in Indonesia has offered to supply Cheong Company with ready-made units for a price of $15 for each harness.Assume that Cheong's fixed costs are unavoidable,and that Cheong will not be able to use the excess capacity in any profitable manner.What will be the impact on Cheong's monthly operating income,if Cheong decides to outsource?

Accepted Answer

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Quiz 25: Short-Term Business Decisions

________ refer to the value forgone in order to make one particular investment instead of another.

The benefit foregone by not choosing an alternative course of action is referred to as a(n) :

Gnome Company is trying to decide whether to continue to manufacture a particular component or to buy the component from a supplier.Which of the following is relevant to this decision?

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

Which of the following phrases most accurately describe opportunity cost?