Exam 13: Relevant Information for Special Decisions

The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Based on this information, the company should:

The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows: Unit level costs \ 45 Product level costs \ 15 Facility level costs \ 5 The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order?

Ethan paid $3 for a bottle of ThirstAid. Later, while on a hiking trip, he was offered $8 for the ThirstAid. Select the correct statement from the following:

Chavez Company is considering purchasing new equipment or overhauling its existing equipment. The manager has gathered the following information: Required:Identify the sunk costs associated with this decision.Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.Compute the increase or decrease in total income over the five-year period if the company chooses to overhaul its existing machinery.What is your recommendation for this decision?

Discuss why qualitative characteristics must be considered when making decisions such as special orders, outsourcing, elimination and replacement decisions, and scarce resource allocation decisions. Give examples.

Osprey Company is trying to decide between the following two alternatives: Alternative A Alternative B Projected revenue \ 50,000 \ 60,000 Direct material 6,000 12,000 Assembly labor 9,000 9,000 Production supervisor's salary 10,000 10,000 Facility-related costs Profit Which of the following conclusions can be drawn from this example?

Indicate whether each of the following statements is true or false.

For an equipment replacement decision, what costs are relevant, and what costs are not relevant?

Indicate whether each of the following statements is true or false.

Indicate whether each of the following statements is true or false.

The cost that is avoided when a company eliminates a single item of a product or service is a:

Great Outdoors Company operates a store in downtown Denver that has five departments including a fishing department. If the fishing department is closed, the store manager's position will not be affected, but if the entire store is closed, the manager will be terminated. Which of the following lessons should be learned from this example?

For purposes of decision making, avoidable costs are costs that:

The benefits sacrificed when one alternative is chosen over another are referred to as:

The practice of buying goods and services from other companies is commonly known as vertical integration.

An alternative under consideration involves incurring $50 in costs to generate $60 in revenue. The differential revenue for this alternative is $10.

Special order decisions involve: