Exam 11: Relevant Costs for Decision Making

Which of the following is a relevant qualitative factor in a keep or drop decision?

Special orders may stipulate requirements such as reduced price or additional customisation.

By-products have lower sales values compared to other joint products.

The analytical method that does not rely on assumptions is:

The general rule for deciding whether to process further is whether the incremental revenue is greater than the incremental cost.

Aspects of the decision process that affect the quality of non-routine operating decisions are:

The physical output method for allocating joint costs is used when the output for all products can be expressed using the same physical measure.

Future revenues and costs are often a source of uncertainty for non-routine operating decisions. Future revenues and costs can be affected by: I $\quad$ Economic envirorinent changes II $\quad$ Customer demand III $\quad$ Raw Material shortages

Emphasising products with higher contribution margins assumes that fixed costs are unaffected by product mix.

Platinum Company has a capacity of 45,000 units, and is currently producing and selling 40,000 at $25 a unit. The present cost structure, on a per unit basis, is: Direct material \1 0 Direct labour 5 Variable overhead 3 Fixed overhead 4 An order for 7,000 units has been received from a New Zealand company at a price of $20 per unit. If the order is accepted, profit will:

Order Point Ltd manufactures componentry used in the production of computers. The units can be purchased for $50 each from an outside vendor. It costs the manufacturer $60 per unit to produce them, of which 25% is fixed overhead cost. What are the relevant costs for this decision? Based on these costs, which option should the company choose? Relevant Costs i. \ 50 and \ 45 Manufacture ii. \ 50 and \ 45 Purchase iii. \ 45 and \ 40 Purchase iv. \ 45 and \ 40 Manufacture

Reality Planet Ltd. sells product a model star at a price of $48 a unit. The per-unit cost data are: direct materials $15, direct labour $10, and overhead $12 (50% fixed and 50% variable). Reality Planet has sufficient capacity to accept a special order for 40,000 units just received. Selling costs associated with this order would be $3 per unit. The minimum selling price per unit should be:

Which of the following is the best definition of a qualitative factor?

In applying a relevant quantitative analysis technique to a non-routine operating decision, managers must:

Avoidable fixed costs are those that can be eliminated if the product or segment is dropped.

The general rule for relaxing capacity constraints assumes that sales of one product do not affect sales of another product.

Which of the following statements about outsourcing is true? I $\quad$ Outsourcing is the process of finding extemal suppliers II $\quad$ Outsourcing is very common in today's business world III $\quad$ Outsourcing is used for marnufactured goods and for services

Vident Ltd has 1,000 commercial frozen ice machines in inventory produced at a cost of $4,000 each (60% variable and 40% fixed). The machines were to have been sold for $10,000 each. However, the machines currently contain a minor malfunction, reducing their selling price to $1,500 each. The company could correct the malfunction at a variable cost of $2,500 each, and then sell the machines for $5,500 each. For purposes of determining whether the machines should be reworked, what is the opportunity cost per unit?

Cash flow analysis can be used in non-routine operating decision making.

Which of the following would be considered joint products?