Question 1

Julianna LLC is facing a make-or-buy decision and must decide whether to meet its needs internally or to acquire goods or services from external sources.Julianna LLC adopted an activity-based costing system and found that its overhead costs were more than 50 percent of total product costs and the managers wanted to identify the activities that drove overhead costs.Based on the cost of activities,the management decided to outsource many of the activities that drove overhead costs.The expected result of this action would be that
Overhead costs cost of goods purchased from suppliers

Accepted Answer

By outsourcing the activities that drive overhead costs, the overhead costs of Julianna LLC would decrease. This means that the cost of goods purchased from suppliers would increase as the company would be relying more on external sources to meet its needs. Therefore, the correct answer is choice A, which states that overhead costs would decrease and the cost of goods purchased from suppliers would increase.

Question 2

BLUE Company
BLUE Company needs 10,000 units of a certain part to be used in production.If BLUE buys the part from RED Company instead of making it,BLUE could not use the present facilities for another manufacturing activity.Sixty percent (60%)of the fixed overhead applied will continue regardless of what decision is made.
The following quantitative information is available regarding the situation presented:

Refer to BLUE Company.Which alternative is more desirable for BLUE and by what amount?

Accepted Answer

The answer of BLUE Company
BLUE Company needs 10,000 units of...

Question 3

A firm facing a make-or-buy decision must decide whether to meet its needs internally or to acquire goods or services from external sources.Whether to make or buy depends on which of the following factors?

Accepted Answer

All of the factors listed (cost, dependability of suppliers, and quality of purchased materials) are important considerations when making a make-or-buy decision. The best choice will depend on a careful evaluation of all of these factors as they relate to the specific situation facing the firm.

Question 4

BLUE Company
BLUE Company needs 10,000 units of a certain part to be used in production.If BLUE buys the part from RED Company instead of making it,BLUE could not use the present facilities for another manufacturing activity.Sixty percent (60%)of the fixed overhead applied will continue regardless of what decision is made.
The following quantitative information is available regarding the situation presented:

Refer to BLUE Company.In deciding whether to make or buy the part,BLUE' s total relevant cost to make the part is

Accepted Answer

Total relevant cost to make the part:
Direct materials = $200,000
Direct labor = $100,000
Variable overhead = $80,000
Fixed overhead (40% that will be avoided) = $120,000
Total relevant cost = $500,000

Total cost to buy the part:
Purchase cost per unit = $50
Total cost to purchase 10,000 units = $500,000

Since the total relevant cost to make the part is higher than the total cost to buy the part, it is more cost-effective for BLUE Company to buy the part from RED Company. Therefore, the best choice is to buy, and BLUE Company should choose option B.

Question 5

What stabilizes and improves processes to decrease variation,and is well suited to removing disruptions in the process?

Accepted Answer

Total Quality Management (TQM) focuses on stabilizing and improving processes to decrease variation, which ultimately leads to higher levels of quality and customer satisfaction. TQM involves identifying and resolving disruptions in the process through continuous improvement, employee involvement, and data-driven decision making. TQM is well-suited to removing disruptions in the process as it emphasizes the importance of identifying and eliminating root causes of problems rather than just treating symptoms.

Question 6

The objective of the theory of constraints is to increase throughput contribution (sales dollars minus direct materials costs),minimize investments,and manage production by

Accepted Answer

The theory of constraints focuses on identifying the bottleneck in the production process and managing the rest of the operations accordingly. By allowing the bottleneck to dictate the pace of production, throughput can be increased without the need for additional investments in facilities or labor. This approach helps minimize investments and maximize sales dollars by optimizing the use of existing resources. Therefore, choice A is the best option. B, C, and D are not relevant to the theory of constraints.

Question 7

The theory of constraints identifies bottlenecks and possible disruption that threatens throughput.When disruptions are hard to pinpoint or eliminate,managers may utilize which of the following techniques?

Accepted Answer

Quality control techniques from Total Quality Management can help identify and eliminate disruptions that are difficult to pinpoint, by focusing on root cause analysis and continuous improvement to ensure consistent quality and reduce variability in processes. Quantity control, price control, and cost control techniques are not specifically aimed at identifying and eliminating disruptions that threaten throughput.

Question 8

Clear Sailing Lifeboats
Clear Sailing Lifeboats uses 12,000 units of a certain component in production each year.Presently,this component is purchased from an outside supplier at $9.50 per unit.For some time now there has been idle capacity in the factory that could be utilized to make this component.The costs associated with manufacturing the component internally rather than buying it from the outside supplier are

Refer to Clear Sailing Lifeboats.If the company chooses to make the component instead of buying it from an outside supplier,the changes in the company's net income per year would be a

Accepted Answer

The answer of Clear Sailing Lifeboats
Clear Sailing Lifeboats uses 12,000...

Question 9

Which of the following statements is correct?

Accepted Answer

The theory of constraints aims to identify and manage bottlenecks in a system. One of the main goals is to increase throughput, which is the amount of revenue generated by a system. Therefore, the theory focuses on revenue and cost management when dealing with bottlenecks. The other options (B, C, and D) are incorrect statements about the theory of constraints.

Question 10

M Corporation makes automobile engines.The company's records show the following costs to
Manufacture part #308FD:

Another manufacturer has offered to supply M Corporation with part #308FD for a cost of $50 per unit.M Corporation uses 1,000 units annually.If M Corporation accepts the offer,what will be the short-run impact on operating income?

Accepted Answer

M Corporation's current cost of producing part #308FD is $58 per unit ($20 + $16 + $12 + $5 + $5). If they accept the offer from the other manufacturer at $50 per unit, they will save $8 per unit. With an annual usage of 1,000 units, the total cost savings would be $8,000. Therefore, the short-run impact on operating income will be a decrease in profits equal to $2,000 (i.e., $8,000 cost savings – $6,000 lost contribution margin from not producing the part internally).

Question 11

Clear Sailing Lifeboats
Clear Sailing Lifeboats uses 12,000 units of a certain component in production each year.Presently,this component is purchased from an outside supplier at $9.50 per unit.For some time now there has been idle capacity in the factory that could be utilized to make this component.The costs associated with manufacturing the component internally rather than buying it from the outside supplier are

Refer to Clear Sailing Lifeboats.Assuming other things stay the same,at what price per unit from the outside supplier would the company be indifferent (on economic grounds)to buying or making the components?

Accepted Answer

The answer of Clear Sailing Lifeboats
Clear Sailing Lifeboats uses 12,000...

Question 12

Which of the following is an example of a make-or-buy decision?

Accepted Answer

Subcontracting work in place of using the company's own employees is an example of a make-or-buy decision. The company can either make the product/service in-house or pay another company to make it for them. This decision involves weighing the costs and benefits of each option to determine which is more cost-effective and efficient.

Question 13

Which of the following is a valid assumption of the theory of constraints?

Accepted Answer

The theory of constraints assumes that within any manufacturing or production process, there are bottlenecks (constraints) that limit the overall output. The assumptions listed in options A, B, and C align with this theory by suggesting that most costs (direct labor, overhead) are fixed and not easily adjusted in the short term, focusing attention on managing constraints rather than on variable costs.

Question 14

What is throughput contribution?

Accepted Answer

Throughput contribution is calculated as sales dollars minus direct materials costs. It focuses on the contribution of a product to covering fixed costs and generating profit, excluding labor and overhead from the calculation.

Question 15

The theory of constraints focuses on revenue and cost management when dealing with bottlenecks.The objective is to do the following
Throughput
Contribution Investments

Accepted Answer

The answer of The theory of constraints focuses on revenue...

Question 16

In deciding whether to manufacture a part or buy it from an outside vendor,which of the following represents a cost that is not relevant to the short-run decision?

Accepted Answer

The fixed overhead that will continue regardless of whether the part is manufactured in-house or purchased from an outside vendor is not relevant to the short-run decision. The decision is focused on the short-run cost of manufacturing the part versus the cost of purchasing it from an outside vendor. Direct labor and variable overhead are both relevant costs that need to be considered in the decision-making process. Fixed overhead that can be avoided by purchasing the part from an outside vendor is also relevant since it will impact the short-run cost.

Question 17

The objectives of the theory of constraints include which of the following?

Accepted Answer

The theory of constraints focuses on identifying and managing the bottleneck (constraint) in a process to improve flow and performance. It aims to minimize investments by not overproducing and letting the bottleneck dictate the pace, ensuring efficient use of resources and maximizing throughput.

Question 18

A firm facing a make-or-buy decision must decide whether to meet its needs internally or to acquire goods or services from external sources.Buying from external sources is often called

Accepted Answer

Outsourcing refers to the process of obtaining goods or services from an external source instead of producing them internally. This can be a cost-effective strategy for a firm that does not have the resources or expertise to produce the goods or services in-house. Outsourcing can also allow a firm to focus on core competencies and strategic activities. However, outsourcing has potential drawbacks, such as loss of control over the quality of goods or services and the risk of dependence on external suppliers. Ultimately, the decision to make or buy depends on factors such as cost, quality, availability, and strategic goals.

Question 19

Which of the following qualitative factors favors the buy choice in a make or buy decision?

Accepted Answer

The answer of Which of the following qualitative factors favors...

Question 20

For the past 10 years,Husky Company has produced the small gas motors that fit into its main product line of weed cutting machines.As material costs have steadily increased,the Controller of Husky Company is reviewing the decision to continue to make the small motors and has identified the following facts:

Which of the items above are relevant to the decision that the controller has to make?

Accepted Answer

The relevant items for the decision are material costs (item 2), direct labor costs (item 3), variable overhead costs (item 4), and the contribution margin (item 5). Item 1, the number of units produced, is not relevant as it does not directly affect the cost per unit.

Quiz 7: Differential Cost Analysis for Operating Decisions