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Exam 10: Decision Making and Relevant Information

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Question 31

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

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Question 32

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

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Amounts that remain the same among alter...

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Question 33

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

Answer the following questions using the information below: Grant's Cakes is approached by Ms Tammy Wang,a new customer,to fulfil 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: $\begin{array} { l r } \text { Direct materials } & \$ 455 \\\text { Direct labour } & 300 \\\text { Variable manufacturing support } & 45 \\\text { Fixed manufacturing support } & 100 \\\text { Total manufacturing costs } & 900 \\\text { Mark-up (60\%) } & \underline { 540 } \\\text { Targeted selling price } & \$ 1440\end{array}$ Grant's Kitchens has excess capacity.Ms Wang wants layered cream cheese pound cakes rather than plain pound cakes,so direct material costs will increase by $30 per unit. -Other than price,what other items should Grant's Cakes consider before accepting this one-time-only special order?

Answer the following questions using the information below: Northwoods manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $100 per table,consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Northwoods' policy to add a 50% mark-up to full costs. -Northwoods is invited to bid on a one-time-only special order to supply 100 rustic tables.What is the lowest price Northwoods should bid on this special order?

A segment has the following data: $\begin{array} { l r } \text { Sales } & \$ 600000 \\\text { Variable costs } & 320000 \\\text { Fixed costs } & 310000\end{array}$ What will be the incremental effect on net income if this segment is eliminated,assuming the fixed costs will be allocated to profitable segments?

An incremental product cost is generally a fixed cost.

In linear programming,what are the goals of management expressed in?

Answer the following questions using the information below: Welch Manufacturing is approached by a European customer to fulfil a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers: $\begin{array} { l r } \text { Variable costs: } & \\\quad \text { Direct materials } & \$ 40 \\\quad \text { Direct labour } & 20 \\\text { Manufacturing support } & 35 \\\quad \text { Marketing costs } & 15 \\\text { Fixed costs: } & \\\quad \text { Manufacturing support } & 45 \\\quad \text { Marketing costs } & 15 \\\text { Total costs } & 170 \\\text { Mark-up (50\%) } & \underline { 85 } \\\text { Targeted selling price } & \$ 255\end{array}$ -What is the change in operating profits if the one-time-only special order for 1000 units is accepted for $180 a unit by Welch?

Answer the following questions using the information below: Jamberry Preserves currently makes jams and spreads and a variety of decorative jars used for packaging.An outside supplier has offered to supply all of the needed decorative jars.For this make-or-buy decision,a cost analysis revealed the following avoidable unit costs for the decorative jars: $\begin{array} { l r } \text { Direct materials } & \$ 0.25 \\\text { Direct labour } & 0.03 \\\text { Unit-related support costs } & 0.10 \\\text { Batch-related support costs } & 0.12 \\\text { Product-sustaining support costs } & 0.22 \\\text { Facility-sustaining support costs } & 0.28 \\ { \text { Total cost per jar } } & \underline{ \$ 1.00}\end{array}$ -The maximum price that Jamberry Preserves should be willing to pay for the decorative jars is:

________ is/are relevant in a decision to replace equipment.

Which of the following would NOT be considered in a make-or-buy decision?

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

The cost to produce Part A was $10 per unit in 2017 and in 2018 it has increased to $11 per unit.In 2018,Supplier XYZ has offered to supply Part A for $9 per unit.For the make-or-buy decision:

A bottleneck occurs in an operation when the work to be performed exceeds the available capacity to do it.

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

When deciding to accept a one-time-only special order from a wholesaler,management should do all of the following EXCEPT:

Generally,managers use total costs rather than unit costs because total costs are easier to work with and reduce the chance for erroneous conclusions.

The assumption of no ________ or strategic implications is crucial to management's analysis of the one-time-only special order decision.

The sum of all costs incurred in all business functions in the value chain (product design,manufacturing,marketing and customer service,for example) is known as the: