Question 1

Answer the following questions using the information below:
Victoria, Inc., is considering replacing a machine. The following data are available:
 
-The difference between the original cost of an asset and the accumulated depreciation is known as the:

Accepted Answer

The difference between the original cost of an asset and the accumulated depreciation is known as book value. Therefore, choice C is the correct option. Historical cost refers to the original cost of the asset. Market value refers to the current value of the asset in the market. Depreciable cost is the original cost of the asset minus its salvage value. None of these options are the correct answer for the given question.

Question 2

Computer Products produces two keyboards, Regular and Special. Regular keyboards have a unit contribution margin of $128, and Special keyboards have a unit contribution margin of $720. The demand for Regulars exceeds Computer Product's production capacity, which is limited by available machine-hours and direct manufacturing labor-hours. The maximum demand for Special keyboards is 80 per month. Management desires a product mix that will maximize the contribution toward fixed costs and profits. Direct manufacturing labor is limited to 1,600 hours a month and machine-hours are limited to 1,200 a month. The Regular keyboards require 20 hours of labor and 8 machine-hours. Special keyboards require 34 labor-hours and 20 machine-hours.
Let R represent Regular keyboards and S represent Special keyboards. The correct set of equations for the keyboard production process is:

Accepted Answer

The correct set of equations for the keyboard production process is:
Maximize: $128R + $720S	
Constraints:
	Labor-hours: 20R + 34S ≤ 1,600
	Machine-hours: 8R + 20S ≤ 1,200
	Special: S ≤ 80
	S ≥ 0
	Regular: R ≥ 0

This is the correct set of equations to maximize the contribution toward fixed costs and profits while taking into account the production constraints. Option A has the correct equations and constraints, while the other options either have incorrect equations or incorrect constraints, which would not lead to the optimal product mix.

Question 3

Local Steel Construction Company produces two products, steel and wood beams. Steel beams have a unit contribution margin of $200, and wood beams have a unit contribution margin of $150. The demand for steel beams exceeds Local Steel Construction Company's production capacity, which is limited by available direct labor and machine-hours. The maximum demand for wood beams is 90 per week. Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits.
Direct manufacturing labor is limited to 3,000 hours a week and 1,000 hours is all that the company's outdated machines can run a week. The steel beams require 120 hours of labor and 60 machine-hours. Wood beams require 150 labor hours and 120 machine-hours.
Required:
Formulate the objective function and constraints necessary to determine the optimal product mix.

Accepted Answer

The answer of Local Steel Construction Company produces two products,...

Question 4

In linear programming, the goals of management are expressed in:

Accepted Answer

In linear programming, the goals of management are expressed in an objective function. This function represents the quantity that the organization wants to maximize or minimize. The constraints are the limitations or restrictions that the organization faces in achieving its objectives, while operating policies are the guidelines or rules that dictate how the organization will operate. Business functions are the different areas or departments within an organization, such as finance, marketing, or operations.

Question 5

Answer the following questions using the information below:
Victoria, Inc., is considering replacing a machine. The following data are available:
 
-The difference between keeping the old machine and replacing the old machine is:

Accepted Answer

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

Question 6

Answer the following questions using the information below:
Victoria, Inc., is considering replacing a machine. The following data are available:
 
-For the decision to keep the old machine, the relevant costs of keeping the old machine total:

Accepted Answer

The relevant costs of keeping the old machine include only the costs that will be incurred if the machine is kept, such as maintenance and operating costs, not sunk costs or costs that will be incurred regardless of the decision.

Question 7

Why is the book value of old equipment irrelevant to the equipment replacement decision?

Accepted Answer

The answer of Why is the book value of old...

Question 8

When replacing an old machine with a new machine, the purchase price of the old machine is a relevant cost.

Accepted Answer

The purchase price of the old machine is a sunk cost, which is not relevant to the decision of replacing it with a new machine. Relevant costs are future costs that will be affected by the decision.

Question 9

Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:
  Required:
a. What costs are sunk?
b. What costs are relevant?
c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?
d. What other items should Pat, as manager of the Pizzeria, consider when making this decision?

Accepted Answer

The answer of Pat, a Pizzeria manager, replaced the convection...

Question 10

How can conflicts arise between the decision model and the performance evaluation model used to evaluate managers? Provide an example of this type of conflict.

Accepted Answer

The answer of How can conflicts arise between the decision...

Question 11

When replacing an old machine with a new machine, the trade in value of the old machine is relevant.

Accepted Answer

When replacing an old machine with a new machine, the trade in value of the old machine is relevant as it can be used to offset the cost of the new machine. Therefore, it is important to consider the trade in value when upgrading or replacing equipment.

Question 12

If management takes a multiple-year view in the decision model and judges success according to the current year's results, a problem will occur in the:

Accepted Answer

The problem occurs in the performance evaluation model when management takes a multiple-year view in the decision model and judges success according to the current year's results, as the performance evaluation model should reflect the goals and objectives set in the decision model over the long term. If management only focuses on the current year's results, it can lead to short-term decision making that may not be beneficial in the long run.

Question 13

The three steps involved in linear programming include all of the following EXCEPT:

Accepted Answer

The three steps involved in linear programming are determining the objective, determining the basic relationship, and computing the optimal solution. Determining the relevant and irrelevant costs is not one of the steps involved in linear programming.

Question 14

When replacing an old machine with a new machine, the book value of the old machine is a relevant cost.

Accepted Answer

Book value is not a relevant cost when replacing an old machine with a new machine as it only indicates the value of the machine on the company's balance sheet and not its actual market value or replacement cost. Relevant costs for this decision would include the cost of the new machine, disposal or sale value of the old machine, installation and training costs, and any changes in operating costs or revenues.

Question 15

Managers tend to favor alternatives that make their own performance look better.

Accepted Answer

This is a known bias called the self-serving bias, where individuals tend to attribute successes to their own abilities and failures to external factors. Managers may therefore favor alternatives that make their own performance look better, even if it is not the best option for the organization as a whole.

Question 16

Top management faces a persistent challenge to make sure that the performance evaluation model of lower level managers is:

Accepted Answer

Top management needs to ensure that the performance evaluation model of lower level managers is consistent with the decision model, which means it should align with the company's overall strategic objectives and measures both quantitative and qualitative factors. Focusing solely on short-term performance or quantitative factors alone may lead to short-sighted decisions that are not aligned with the company's long-term goals. Therefore, option C is the correct answer. Option A and option B are incorrect. Option D is not a desirable outcome as the performance evaluation model should be consistent with the decision model.

Question 17

Linear programming is a tool that maximizes total contribution margin of a mix of products with multiple constraints.

Accepted Answer

This is a correct statement about linear programming.

Question 18

Managers tend to favor the alternative that makes their performance look best. Therefore, they tend to focus on:

Accepted Answer

Managers tend to focus on the measures used in the performance evaluation model because that is what will ultimately determine how successful they appear to be. They want to choose the alternative that will make them look good in the eyes of their superiors, so they prioritize the measures that are most important in the evaluation process.

Question 19

Replacing an old machine will increase operating income in the long run, but NOT for this year. A manager may choose not to replace the machine if performance evaluations are based on performance over a single year.

Accepted Answer

Replacing an old machine may require a significant initial investment, resulting in reduced operating income in the short term. However, over the long run, the newer and more efficient machine will likely improve productivity and reduce operating costs, resulting in higher operating income. If a manager's performance evaluation is based solely on performance over a single year, they may be hesitant to make the investment, as the short-term reduction in operating income could negatively impact their evaluation.

Question 20

A mathematical inequality or equality that must be appeased is known as a(n):

Accepted Answer

Constraints are mathematical expressions that restrict the feasible region of a problem. They ensure that any possible solution satisfies certain requirements, such as resource limitations or production capacity. The objective function, on the other hand, is the mathematical expression that represents the quantity to be maximized or minimized in an optimization problem. Operating policies and business functions are not related to mathematical inequalities or equalities.

Quiz 11: Decision Making and Relevant Information

Answer the following questions using the information below: Victoria, Inc., is considering replacing a machine. The following data are available: -The difference between the original cost of an asset and the accumulated depreciation is known as the: