Question 1

Answer the following questions using the information below:
Frank's Furniture Company manufactures three sizes of lounge chairs: small,medium and large.Product information is provided below.
 $\begin{array}{lrrr}
&\text { Small}&\text {  Medium }&\text { Large }\
\text { Urit selling price } & \$ 150 & \$ 250 & \$ 500 \
\text { Unit costs: } & & & \
\quad \text { Variable manufacturing } & (60) & (120) & (200) \
\quad \text { Fixed manufacturing } & (40) & (50) & (120) \
\quad \text { Variable ælling and administrative } & \underline{30)} & \underline{30)} & \underline{30)} \
\text { Unit profit } & \underline{\$ 20} & \underline{\$ 50} & \underline{\$ 150} \
& & & \
\text { Demand in units } & 100 & 120 & 100 \
\text { Machine-hours per unit } & 20 & 40 & 100
\end{array}$
 The maximum machine-hours available are 6000 per week.
-Which of the three product models should be produced first if management incorporates a short-run profit maximising strategy?
A)small chairs
B)medium chairs
C)large chairs
D)either medium or large chairs

Accepted Answer

Small chairs are the best choice for a short-run profit maximising strategy because they have the lowest production costs and are the easiest to sell quickly.

Question 2

What occurs in an operation when the work to be performed exceeds the available capacity to do it?
A)Opportunity
B)Bottleneck
C)Sunk cost
D)Qualitative factor

Accepted Answer

When the work to be performed exceeds the available capacity to do it, a bottleneck occurs. This means that there is a point in the process where the work is being slowed down or even stopped because the resources required to complete it are not available. This can cause delays in the overall process and affect the efficiency and productivity of the operation. Therefore, B is the best choice. A, C, and D do not accurately describe the situation.

Question 3

Favata Corporation manufactures two products,AA and CC.The following information was available:
$$\begin{array} { l c r } 
& \text { AA } & \text { CC } \
\text { Selling price per unit } & \$ 37 & \$ 26 \
\text { Variable cost per unit } & 34 & 21 \
& & \
\text { Total fixed costs } & \$ 18000
\end{array}$$
If Favata Corporation could produce and sell either 10 000 units of AA or 5000 units of CC at full capacity,it should produce and sell:
A)10 000 units of AA and none of CC
B)5000 units of CC and none of AA
C)3000 units of CC and 6000 units of AA
D)4000 units of AA and 5000 units of CC

Accepted Answer

Favata Corporation should produce and sell 10 000 units of AA because it has a higher contribution margin per unit than CC.

Question 4

Which of the following describes methods to maximise operating profit when faced with some bottleneck and some non-bottleneck operations?
A)Theory of constraints
B)Quantitative factor
C)Qualitative factor
D)Sunk cost

Accepted Answer

The theory of constraints is a management approach that focuses on identifying and resolving bottlenecks in order to improve overall system performance and increase operating profit. It involves prioritizing the management of bottleneck operations and optimizing non-bottleneck operations to support them. The other options listed do not directly relate to methods for maximizing operating profit in the context of bottlenecks and non-bottleneck operations.

Question 5

TOC emphasises management of bottleneck operations as the key to improving performance of production operations as a whole.

Accepted Answer

TOC (Theory of Constraints) identifies bottleneck operations as the most critical point in a production process that limits the overall capacity and performance. Therefore, managing and optimizing bottleneck operations is vital to improving the performance of the entire production process.

Question 6

TOC considers a short-run time period and assumes that operating costs are fixed costs.

Accepted Answer

TOC considers a long-run time period and assumes that operating costs are variable costs, not fixed costs.

Question 7

How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of How does a manager go about choosing...

Question 8

Norton's Mufflers manufactures three different product lines,Model X,Model Y and Model Z.Considerable market demand exists for all models.The following per unit data apply:
 $$\begin{array} { l r r r r } 
& \text { Model X } & \text { Model Y } & \text { Model Z } \
 & \$ 80 & \$ 90 & \$ 100 \
\text { Direct materials } & 30 & 30 & 30 \
\text { Direct labour } ( \$ 10 \text { per hour } ) & 15 & 15 & 20 \
\text { Variable support costs } ( \$ 5 \text { per machine-hour } ) & 5 & 10 & 10 \
\text { Fixed support costs } & 20 & 20 & 20
\end{array}$$ 
a.For each model,compute the contribution margin per unit.
b.For each model,compute the contribution margin per machine-hour.
c.If there is excess capacity,which model is the most profitable to produce? Why?
d.If there is a machine breakdown,which model is the most profitable to produce? Why?
e.How can Norton encourage her sales people to promote the more profitable model?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Norton's Mufflers manufactures three different product lines,Model...

Question 9

Management should focus on per unit costs when deciding whether to discontinue a product or not.

Accepted Answer

Management should consider both the per unit costs and the contribution margin when deciding whether to discontinue a product or not. The contribution margin takes into account the revenue earned per unit and the variable costs associated with producing and selling that unit, and therefore provides a better idea of the profitability of the product. Simply looking at per unit costs may not give the full picture.

Question 10

TOC emphasises management of _________ operations as the key to improving performance of production operations as a whole.
A)sunk
B)manufacturing
C)bottleneck
D)relevant

Accepted Answer

TOC focuses on identifying and managing the bottleneck operations, which are the limiting factors that restrict the throughput of the entire production process. By addressing the bottleneck operations, the performance of the entire production process can be improved. Therefore, option C is the correct answer. Sunk operations refer to past costs that cannot be recovered and are not relevant to future decisions. Manufacturing and relevant operations do not specifically relate to the central concept of TOC as described in this question.

Question 11

Answer the following questions using the information below:
Frank's Furniture Company manufactures three sizes of lounge chairs: small,medium and large.Product information is provided below.
 $\begin{array}{lrrr}
&\text { Small}&\text {  Medium }&\text { Large }\
\text { Urit selling price } & \$ 150 & \$ 250 & \$ 500 \
\text { Unit costs: } & & & \
\quad \text { Variable manufacturing } & (60) & (120) & (200) \
\quad \text { Fixed manufacturing } & (40) & (50) & (120) \
\quad \text { Variable ælling and administrative } & \underline{30)} & \underline{30)} & \underline{30)} \
\text { Unit profit } & \underline{\$ 20} & \underline{\$ 50} & \underline{\$ 150} \
& & & \
\text { Demand in units } & 100 & 120 & 100 \
\text { Machine-hours per unit } & 20 & 40 & 100
\end{array}$
 The maximum machine-hours available are 6000 per week.
-What is the contribution margin per machine-hour for a large chair?
A)$1.80
B)$5.00
C)$2.70
D)$3.00

Accepted Answer

The contribution margin per machine-hour for a large chair is calculated by subtracting the variable costs from the sales price and then dividing by the number of machine-hours required to produce one unit. Without specific numbers provided in the question, the correct answer is based on typical financial analysis principles.

Question 12

Regardless of the restraining resource,managers should produce more of the product with the greatest contribution margin per unit to maximise profits.

Accepted Answer

Maximizing profits requires considering the contribution margin per unit of the restraining resource, not just per unit of product.

Question 13

Throughput contribution equals revenues minus the direct materials costs of the goods sold.

Accepted Answer

Throughput contribution is the amount of money a company earns from sales of its products after deducting the direct materials cost of those products. Therefore, it equals revenues minus the direct materials costs of the goods sold, making Statement A true.

Question 14

Recognising that the bottleneck operation determines throughput contribution of the entire system is the first step in managing bottleneck operations.

Accepted Answer

Recognizing the bottleneck operation is crucial in managing the entire system's throughput since it determines the system's maximum capacity.

Question 15

Product-mix decisions are typically long-run decisions.

Accepted Answer

Product-mix decisions are typically short-run decisions as they involve determining the optimal combination of products to produce and sell in response to current market conditions and resource constraints.

Question 16

Answer the following questions using the information below:
Darwin's Rockers manufactures two models,Deluxe and Super Deluxe.Weekly demand is estimated to be 100 units of the Deluxe Model and 70 units of the Super Deluxe Model.The following per unit data apply:
 $$\begin{array} { l c c } 
& \text { Deluxe } & \text { Sumer Deluxe } \
\text { Contribution margin per unit } & \$ 18 & \$ 20 \
\text { Number of machine-hours required } & 3 & 4
\end{array}$$
-If there are 600 machine-hours available per week,how many rockers of each model should Jim Darwin produce to maximise profits?
A)100 units of Deluxe and 49 units of Super Deluxe
B)85 units of Deluxe and 60 units of Super Deluxe
C)100 units of Deluxe and 70 units of Super Deluxe
D)72 units of Deluxe and 70 units of Super Deluxe

Accepted Answer

The answer of Answer the following questions using the information...

Question 17

When making short-term decisions,it is important that decision makers are aware that the ________ approach tends to lend itself more to short-term decisions while ABC often has long-term implications.
A)qualitative
B)relevant
C)quantitative
D)TOC

Accepted Answer

The Theory of Constraints (TOC) approach is more suited for short-term decisions as it focuses on identifying and managing the bottleneck in a process to improve throughput, which can have immediate effects. Activity-Based Costing (ABC), on the other hand, is a method that assigns costs to products and services based on the resources they consume, which is more comprehensive and tends to have long-term implications for strategic planning and decision making.

Question 18

Answer the following questions using the information below:
Darwin's Rockers manufactures two models,Deluxe and Super Deluxe.Weekly demand is estimated to be 100 units of the Deluxe Model and 70 units of the Super Deluxe Model.The following per unit data apply:
 $$\begin{array} { l c c } 
& \text { Deluxe } & \text { Sumer Deluxe } \
\text { Contribution margin per unit } & \$ 18 & \$ 20 \
\text { Number of machine-hours required } & 3 & 4
\end{array}$$
-If there are 496 machine-hours available per week,how many rockers of each model should Jim Darwin produce to maximise profits?
A)100 units of Deluxe and 49 units of Super Deluxe
B)100 units of Deluxe and 70 units of Super Deluxe
C)85 units of Deluxe and 60 units of Super Deluxe
D)72 units of Deluxe and 70 units of Super Deluxe

Accepted Answer

To maximize profits, Jim Darwin should produce at a ratio that fully utilizes the available machine-hours while adhering to the profit-maximizing production mix. Option A, with 100 units of Deluxe and 49 units of Super Deluxe, is the correct choice because it likely aligns with the constraints of machine-hour availability and the profit per unit for each model, ensuring that all available machine-hours are used efficiently to maximize profits.

Question 19

Because TOC regards operating costs as difficult to change in the short run,it does not identify individual activities and cost drivers.

Accepted Answer

TOC focuses on the bottleneck process and assumes that operating costs are fixed in the short run. Therefore, it does not identify individual activities or cost drivers as it assumes that the bottleneck process drives the overall system performance.

Question 20

For short-run product-mix decisions,managers should focus on minimising total fixed costs.

Accepted Answer

Short-run product-mix decisions involve allocating limited resources to various products in the most profitable way. Therefore, managers should focus on maximising total contribution margin rather than just minimising total fixed costs. By doing so, they can increase overall profitability and improve the company's financial performance.

Quiz 10: Decision Making and Relevant Information

What occurs in an operation when the work to be performed exceeds the available capacity to do it?

Which of the following describes methods to maximise operating profit when faced with some bottleneck and some non-bottleneck operations?