Exam 14: Decision Making: Relevant Costs and Benefits

A factory that makes a part has significant idle capacity. The factory's opportunity cost of making this part is equal to:

Newton Manufacturing has 31,000 labor hours available for producing M and N. Consider the following information: If Newton follows proper managerial accounting practices in terms of setting a production schedule, how much contribution margin would the company expect to generate?

When using a graphical solution to a linear programming problem, the optimal solution will lie in an area commonly known as the:

A constraint function in a linear-programming problem might focus on:

Use this information to answer the following Questions Kingston Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following information: -If Kingston follows proper managerial accounting practices, how many units of Product X should it produce?

Fairline Skyways has a significant presence at the Charlotte International Airport and therefore operates the Diamond Club, which is across from gate 36 in terminal 1. The Diamond Club provides food and business services for the company's frequent flyers. Consider the following selected costs of Club operation: 1) Receptionist and supervisory salaries 2) Catering 3) Terminal depreciation (based on square footage) 4) Airport fees (computed as a percentage of club revenue) 5) Allocated Fairline administrative overhead Management is exploring whether to close the club and expand the seating area for gate 36. Which of the preceding expenses would the airline classify as unavoidable?

When deciding whether to sell a product at the split-off point or process it further, joint costs are not usually relevant because:

Information is said to be useful in decision making if it possesses three characteristics. Required: A. List the three characteristics of useful information. B. Frequently, there is a conflict between two of the characteristics requested in part "A." Briefly explain what this conflict is. C. What distinguishes relevant from irrelevant information?

Two months ago, Air-tite Corporation purchased 4,500 pounds of Hydrol, paying $15,300. The demand for this product has been very strong since the acquisition, with the market price jumping to $4.05 per pound. (Air-tite can buy or sell Hydrol at this price.) The company recently received a special-order inquiry, one that would require the use of 4,200 pounds of Hydrol. Which of the following is (are) relevant in deciding whether to accept the special order?

The cost of inventory currently owned by a company is an example of a (n):

Kranston Company is considering whether to sell Retox at the split-off point or subject it to further processing and produce a more refined product known as Retox-F. Consider the following items: I. The selling price of Retox-F II. The joint processing cost of Retox. III. The separable cost of producing Retox-F. Which of the above items is (are) relevant to Kranston's decision to process Retox into Retox-F?

Townson Company manufactures G and H in a joint process. The joint costs amount to $80,000 per batch of finished goods. Each batch yields 20,000 liters, of which 40% are G and 60% are H. The selling price of G is $8.75 per liter, and the selling price of H is $15.00 per liter. Required: A. If the joint costs are allocated on the basis of the products' sales value at the split-off point, what amount of joint cost will be charged to each product? B. Townson has discovered a new process by which G can be refined into Product GG, which has a sales price of $12 per liter. This additional processing would increase costs by $2.10 per liter. Assuming there are no other changes in costs, should the company use the new process? Show calculations.

Tyson Corner Manufacturing produces two bearings: C15 and C19. Data regarding these two bearings follow. The company requires 8,000 units of C15 and 11,000 units of C19. Recently, management decided to devote additional machine time to other product lines, resulting in only 31,000 machine hours per year that can be dedicated to production of the bearings. An outside company has offered to sell Tyson Corner the bearings at prices of $13.50 for C15 and $13.50 for C19. Required: A. Assume that Tyson Corner decided to produce all C15s and purchase C19s only as needed. Determine the number of C19s to be purchased. B. Compute the net benefit to the company of manufacturing (rather than purchasing) a unit of C15. Repeat the calculation for a unit of C19. (Note: in answering this question, do not take into consideration any machine hours constraint). C. Tyson Corner lacks sufficient machine time to produce all of the C15s and C19s needed. Which component (C15 or C19) should Tyson Corner manufacture first with the limited machine hours available? Why? Be sure to show all supporting computations.

Brilliant, Inc. reported the following results from the sale of 24,000 units of IT-54: Extra Company has offered to purchase 3,000 IT-54s at $16 each. Brilliant has available capacity, and the president is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the "full cost" of production is $17. Which of the following correctly notes the change in income if the special order is accepted?

The term "opportunity cost" is best defined as the benefit associated with a rejected alternative when making a choice.

Use this information to answer the following Questions Kingston Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following information: -If Kingston follows proper managerial accounting practices, how many units of Product Y should it produce?

In most all decisions, joint costs are relevant costs.

Homer Enterprises, which produces various goods, has limited processing hours at its manufacturing plant. The following data apply to product no. 607: Sales price per unit: $9.60 Variable cost per unit: $6.20 Process time per unit: 4 hours Management is now studying whether to devote the firm's limited hours to product no. 607 or to other products. What key dollar amount should management focus on when determining no. 607's "value" to the firm and deciding the best course of action to follow?

To be useful in decision making, information should possess which of the following characteristics?

The City of San Diego is about to replace an old fire truck with a new vehicle in an effort to save maintenance and other operating costs. Which of the following items, all related to the transaction, would not be considered in the decision?