Question 1

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 2

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

Accepted Answer

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

Question 3

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 4

For make-or-buy decisions,a supplier's ability to maintain secrecy of intellectual property is considered a(n)________.
A)qualitative factor
B)irrelevant cost
C)differential factor
D)opportunity cost

Accepted Answer

The ability for a supplier to maintain secrecy of intellectual property is a qualitative factor to consider when making make-or-buy decisions. This is because it cannot be measured in dollars or be directly compared to other costs or benefits. Instead, it is a subjective factor that can impact the decision-making process.

Question 5

An incremental cost is
A)an additional total cost for an activity
B)a cost that has already been incurred
C)the difference in total costs between two alternatives
D)always related to fixed costs

Accepted Answer

The answer of An incremental cost is
A)an additional total cost...

Question 6

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 7

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 8

When evaluating a make-or-buy decision,which of the following needs to be considered?
A)alternative uses of the production capacity
B)the original cost of the production equipment
C)pension costs to the current employees
D)material-handling costs that cannot be eliminated

Accepted Answer

Alternative uses of the production capacity should be considered when evaluating a make-or-buy decision as it is important to determine whether using the capacity for the proposed project or for other projects would be more profitable for the business. The other options, such as the original cost of the production equipment, pension costs, and material-handling costs, may not be directly relevant to the decision of whether to make or buy a product.

Question 9

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:
  
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 10

A restaurant is deciding whether it wants to update its image or not.It currently has a cozy appeal with an outdated decor that is still in good condition,menus and carpet that need to be replaced anyway,and loyal customers.
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 11

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
i.Total direct manufacturing materials,Part B
j.Total direct manufacturing labor,Part A
k.Total direct manufacturing labor,Part B

Accepted Answer

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

Question 12

Fairhaven Company needs 1,000 motors in its manufacture of boats.It can buy the motors from Asian Motors for $1,250 each.Southwestern's plant can manufacture the motors for the following costs per unit:
  
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 Fairhaven Company needs 1,000 motors in its...

Question 13

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 14

Swan Manufacturing is approached by a 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:
  
Swan 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 Swan 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 Swan Manufacturing is approached by a customer...

Question 15

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 16

In a make-or-buy decision,which of the following would not be relevant?
A)the quality of the product
B)the portion of fixed costs that could be eliminated by outsourcing
C)a lease that could be discontinued upon accepting the "buy proposal"
D)property taxes on the plant that will still be necessary even if the product is outsourced

Accepted Answer

In a make-or-buy decision, the focus is on the costs and benefits directly related to the decision at hand. Property taxes on the plant that will still be necessary even if the product is outsourced are considered sunk costs and do not change with the decision to make or buy, making them irrelevant to the decision-making process.

Question 17

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 minimizes the risks of outsourcing as it helps to establish trust and transparency between the two parties. This way, the supplier understands the needs and expectations of the firm, and the firm can monitor the supplier's performance closely. This leads to better collaboration, communication, and the ability to mitigate risks together.

Question 18

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 cost of repairing of all equipment of the firm
D)material-handling costs that cannot be eliminated even if the product is outsourced

Accepted Answer

Fixed salaries that will not be incurred if the part is outsourced are relevant costs because they represent potential savings if the decision is made to buy the part instead of making it in-house.

Question 19

Relevant data in a make-or-buy decision of a part include which of the following?
A)The portion of fixed costs that would be incurred whether the product is made or purchased
B)Some portion of fixed costs that would be saved if the product is outsourced
C)Annual plant insurance costs
D)Management consultant fees to restructure the organization framework of the company and improve overall strategic planning

Accepted Answer

Relevant costs in a make-or-buy decision include those costs that will change as a result of the decision. Some portion of fixed costs that would be saved if the product is outsourced (e.g., factory overhead that can be avoided) is relevant because it would not be incurred if the decision is to buy.

Question 20

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 of a part involves sharing confidential information with an external party. This increases the risk of intellectual property theft or leakage. Fluctuations in manufacturing costs (A) may also be a risk but can be mitigated with contractual agreements. Increased need for skilled workers (C) and scarcity of indirect labor (D) are not necessarily risks of outsourcing, but rather potential challenges to consider when selecting a vendor.

Quiz 11: Decision Making and Relevant Information

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

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

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 ________.

For make-or-buy decisions,a supplier's ability to maintain secrecy of intellectual property is considered a(n) ________.

An incremental cost is

When evaluating a make-or-buy decision,which of the following needs to be considered?

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

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

In a make-or-buy decision,which of the following would not be relevant?

Which of the following minimizes the risks of outsourcing?

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

Relevant data in a make-or-buy decision of a part include which of the following?

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