Question 1

Which of the following is an example of outsourcing?
A) a smartphone manufacturing company factoring its receivables as a source of capital
B) a large conglomerate company selling a business wing to its competitor
C) an automobile company merging with a manufacturing firm to create economic synergies
D) a petrochemical company assigning a vendor to make software for its supply chain management

Accepted Answer

Outsourcing refers to assigning a third-party vendor for a specialized service or task that was previously completed in-house. In this case, the petrochemical company assigning a vendor to make software for its supply chain management is an example of outsourcing.

Question 2

Which of the following is a relevant cost to be included in a make-or-buy decision?
A) fixed salaries that will not be incurred if the part is outsourced
B) pension costs to the current employees
C) increase in the price of all equipment of the firm
D) material-handling costs that cannot be eliminated

Accepted Answer

Fixed salaries that will not be incurred if the part is outsourced are relevant costs as they will be saved if the company decides to buy the part from an outside supplier. Pension costs and equipment price increase are not relevant costs in this decision. Material-handling costs that cannot be eliminated are also not relevant as they will be incurred whether the part is made in-house or outsourced.

Question 3

Explain what revenues and costs are relevant when choosing among alternatives.

Accepted Answer

The answer of Explain what revenues and costs are relevant...

Question 4

Loft Lake Cabinets is approached by Ms.Jenny Zhang,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers:
 $\begin{array}{lr}
\text { Direct materials } & \$ 50.00 \
\text { Direct labor } & 62.50 \
\text { Variable manufacturing support } & 30.00 \
\text { Fixed manufacturing support } & 37.50 \
\quad \text { Total manufacturing costs } & 180.00 \
\text { Markup (60\%) } & 108.00 \
\text { Targeted §elling price } & \$ 288.00
\end{array}$ Loft Lake Cabinets has excess capacity.Ms.Zhang wants the cabinets in cherry rather than oak,so direct material costs will increase by $15 per unit.
Required:
a.For Loft Lake Cabinets,what is the minimum acceptable price of this one-time-only special order?
b.Other than price,what other items should Loft Lake Cabinets consider before accepting this one-time-only special order?
c.How would the analysis differ if there was limited capacity?

Accepted Answer

The answer of Loft Lake Cabinets is approached by Ms.Jenny...

Question 5

Explain why sunk costs are not considered relevant when choosing among alternatives with example.

Accepted Answer

The answer of Explain why sunk costs are not considered...

Question 6

Southwestern Company needs 1,000 motors in its manufacture of automobiles.It can buy the motors from Jinx Motors for $1,250 each.Southwestern's plant can manufacture the motors for the following costs per unit:
 $\begin{array}{lr}
\text { Direct materials } & \$ 500 \
\text { Direct manufacturing labor } & 250 \
\text { Variable manufacturing overhead } & 200 \
\text { Fixed manufacturing overhead } & 350 \
\quad \text { Total } & \$ 1,300
\end{array}$ If Southwestern buys the motors from Jinx,70% of the fixed manufacturing overhead applied will not be avoided.
Required:
a.Should the company make or buy the motors?
b.What additional factors should Southwestern consider in deciding whether or NOT to make or buy the motors?

Accepted Answer

The answer of Southwestern Company needs 1,000 motors in its...

Question 7

Fluty Corporation manufactures a product that has two parts,A and B.It is currently considering two alternative proposals related to these parts.
The first proposal is for buying Part A.This would free up some of the plant space for the manufacture of more of Part B and assembly of the final product.The product vice president believes the additional production of the final product can be sold at the current market price.No other changes in manufacturing would be needed.
The second proposal is for buying new equipment for the production of Part B.The new equipment requires fewer workers and uses less power to operate.The old equipment has a net disposal value of zero.
Required:
Tell whether the following items are relevant or irrelevant for each proposal.Treat each proposal independently.
 a. Total variable manufacturing overhead, Part A
b. Total variable manufacturing overhead, Part B
c. Cost of old equipment for manufacturing Part B
d. Cost of new equipment for manufacturing Part B
e. Total variable selling and administrative costs
f.Sales revenue of the product
g. Total variable costs of assembling final products
h. Total direct manufacturing materials, Part $ A $ Total 
i.direct manufacturing materials, Part B Total direct 
j.manufacturing labor, Part A
k. Total direct manufacturing labor, Part B

Accepted Answer

The answer of Fluty Corporation manufactures a product that has...

Question 8

Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.The following per unit data apply for sales to regular customers:
 $\begin{array}{lr}
\text { Direct materials } & \$ 1,782 \
\text { Direct labor } & 810 \
\text { Variable manufacturing support } & 1,296 \
\text { Fixed manufacturing support } & 2,808 \
\quad \text { Total manufacturing costs } & 6,696 \
\text { Markup (50\%) } & 3,348 \
\text { Targeted æelling price } & \$ 10,044
\end{array}$ Parker and Spitzer Manufacturing has excess capacity.
Required:
a.What is the full cost of the product per unit if the marketing costs is $3,000?
b.What is the contribution margin per unit?
c.Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d.For Parker and Spitzer Manufacturing,what is the minimum acceptable price of this one-time-only special order?
e.For this one-time-only special order,should Parker and Spitzer Manufacturing consider a price of $5,400 per unit? Why or why not?

Accepted Answer

The answer of Parker and Spitzer Manufacturing is approached by...

Question 9

If Option 1 costs $120 and Option 2 costs $90,then the differential cost is $30.

Accepted Answer

The differential cost is the difference between the cost of two options, which in this case is $120 - $90 = $30. Therefore, the statement is true.

Question 10

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit.In 2014,Supplier ABC has offered to supply Part A for $18 per unit.For the make-or-buy decision ________.
A) incremental revenues are $4 per unit
B) incremental costs are $2 per unit
C) net relevant costs are $2 per unit
D) differential costs are $4 per unit

Accepted Answer

Differential costs are the difference in total cost between two alternatives. In this case, the cost to produce Part A increased from $20 to $22, making the differential cost $2. However, the question is about the decision to make or buy. The differential cost in the context of making (at $22 per unit) versus buying (at $18 per unit) is $4 per unit, which is the cost savings per unit by choosing to buy.

Question 11

Relevant costs in a make-or-buy decision of a part include ________.
A) setup overhead for the manufacture of the product using the outsourced part
B) currently used manufacturing capacity that has alternative uses
C) annual plant insurance costs that will remain the same
D) management consultant fees to restructure the organization framework of the company

Accepted Answer

Relevant costs in a make-or-buy decision include costs that will change depending on the decision made. Currently used manufacturing capacity that has alternative uses is relevant because it represents an opportunity cost if the capacity could be used for something else.

Question 12

A restaurant is deciding whether it wants to update its image or not.It currently has a cozy appeal with an outdated dcor that is still in good condition,menus and carpet that need to be replaced anyway,and loyal customers.
 é Identify for the restaurant management
a.those costs that are relevant to this decision,
b.those costs that are not differential,
c.and qualitative considerations.

Accepted Answer

The answer of A restaurant is deciding whether it wants...

Question 13

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

Accepted Answer

The answer of Are relevant revenues and relevant costs the...

Question 14

Sarasota Bicycles has been manufacturing its own wheels for its bikes.The company is currently operating at 100% capacity,and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost.The direct materials and direct labor cost per unit to make the wheels are $3.00 and $3.60 respectively.Normal production is 200,000 wheels per year.
A supplier offers to make the wheels at a price of $8 each.If the bicycle company accepts this offer,all variable manufacturing costs will be eliminated,but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.
Required:
a.Prepare an incremental analysis for the decision to make or buy the wheels.
b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

Accepted Answer

The answer of Sarasota Bicycles has been manufacturing its own...

Question 15

Which of the following minimizes the risks of outsourcing?
A) the use of short-term contracts that specify price
B) shifting the firm's responsibility for on-time delivery to the supplier
C) building close partnerships with the supplier
D) increasing the contract price

Accepted Answer

Building close partnerships with the supplier can help to minimize the risks of outsourcing by establishing open communication and collaboration, leading to better understanding of each other’s needs and capabilities. This can lead to better quality products or services, on-time delivery, and easier resolution of any issues that may arise. Short-term contracts that specify price and increasing the contract price may be used but they do not necessarily minimize risks. Shifting the firm's responsibility for on-time delivery to the supplier may be risky as it results in loss of control over the delivery process.

Question 16

Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?

Accepted Answer

The answer of Under what conditions might a manufacturing firm...

Question 17

Assume you are a sophomore in college and are committed to earning an undergraduate degree.Your current decision is whether to finish college in four consecutive years or take a year off and work for some extra cash.
a.Identify at least two revenues or costs that are relevant to making this decision.Explain why each is relevant.
b.Identify at least two costs that would be considered sunk costs for this decision.
c.Identify at least two opportunity costs for this decision.
d.Comment on at least one qualitative consideration for this decision.

Accepted Answer

The answer of Assume you are a sophomore in college...

Question 18

Which of following is a firm's risk of outsourcing the production of a part?
A) fluctuation in the manufacturing costs
B) leakage of intellectual property
C) increased need of skilled workers
D) scarcity of indirect labor

Accepted Answer

Outsourcing production can lead to the risk of leakage of intellectual property, as external firms may not have the same level of commitment to confidentiality and security as the outsourcing firm.

Question 19

Which of the following is an example of insourcing?
A) a pharmaceutical company's research team developing a new patent using current resources
B) a smartphone manufacturing company factoring its receivables as a source of capital
C) a large conglomerate company selling a business wing to its competitor
D) a petrochemical company assigning a vendor to make software for its supply chain management

Accepted Answer

Insourcing refers to assigning a task or project to an in-house team rather than outsourcing it to a third-party organization. Option A is an example of insourcing because the pharmaceutical company is using its own resources (research team) to develop a new patent.

Question 20

Variable cost per unit is the best product cost to use for one-time-only special order decisions.

Accepted Answer

Variable cost per unit is the best product cost to use for one-time-only special order decisions because fixed costs are not relevant for such decisions. Using variable cost per unit helps to determine the minimum price that should be charged to cover the variable costs and make a profit.

Quiz 11: Decision Making and Relevant Information

Which of the following is an example of outsourcing?

Which of the following is a relevant cost to be included in a make-or-buy decision?

Explain what revenues and costs are relevant when choosing among alternatives.

Explain why sunk costs are not considered relevant when choosing among alternatives with example.

If Option 1 costs $120 and Option 2 costs $90,then the differential cost is $30.

The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit.In 2014,Supplier ABC has offered to supply Part A for $18 per unit.For the make-or-buy decision ________.

Relevant costs in a make-or-buy decision of a part include ________.

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

Which of the following minimizes the risks of outsourcing?

Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?

Which of following is a firm's risk of outsourcing the production of a part?

Which of the following is an example of insourcing?

Variable cost per unit is the best product cost to use for one-time-only special order decisions.