Exam 17: Accounting for Decision Making: With and Without Resource Constraints

How might a manager identify the relevant costs or revenue for a particular decision?

The following information is available for the three product lines produced by Pitts Ltd: The labour availability is limited to 400 hours at these costs and before overtime payments are necessary. If the market will only accept a maximum total of 200 units of any of the three product lines combined, which product(s) should Pitts produce?

Company A prints and distributes licensed T-shirts, which wholesale at $16 each. A major retail chain store has asked to be supplied with 3000 T-shirts at $14 each; these shirts would carry the store's brand name. To process the order, Company A would need to reconfigure the printing program to print the brand name. This would cost $4000 and would not be reusable. There would be no other additional costs. The current cost structure is: Should the special order be accepted, and why?

Consider the following information. The contribution margins for Product X and Product Y are:

Which of the following is not a qualitative factor considered by an organisation?

In deciding whether to close a department or division, the general rule to follow is that if the department/division makes a positive contribution, then it should not be closed, where the contribution is at least equal or greater than the income less the variable costs.

X Ltd has the operating capacity to produce either product A or B: From the information above, which product should X Ltd manufacture and why?

With respect to a decision, a relevant cost is:

The Moony Company, which makes and sells two products, boys' and girls' bikes, has $30 000 to spend on advertising. The company has estimated that using the $30 000 to advertise boys' bikes would increase sales of that product by 1000 units. Moony is uncertain, however, how many additional girls' bikes could be sold by spending $30 000 on that product. Boys' bikes have a contribution margin of $40 per unit and girls' bikes have a contribution margin of $30 per unit. Required: Prepare an analysis to answer each of the following independent questions.

Jack received $560 from his grandmother. He decided to shop for a gift for himself and spent $7 for his bus fares. Jack decided to purchase a new bike for $560. For the same amount, he could have purchased a model GH-200 aeroplane that he adored and that would have provided $120 more benefit than the new bike. Jack was also considering a trip to Melbourne to visit his aunt, although he was not too keen about it. He was also interested in pursuing a course leading to a private pilot's licence, although he is a bit scared of heights. One month later, the price of the bike Jack purchased from Hut Ltd had gone down by $100. The bike had cost Hut Ltd $260 of labour and $170 of plant and equipment. The unavoidable cost is:

For many years, Condor Company has produced a small part that it uses in the production of its standard line of equipment. The company's cost of producing one part, based on a production level of 50 000 parts per year, is: An outside supplier has offered to supply the part to Condor for $29 per part. Condor has determined that 40% of the fixed overhead represents salaries and other costs which can be eliminated if the parts are purchased. Required: Prepare an analysis to determine whether Condor should accept the supplier's offer.

Constraints restricting a manufacturing firm's ability to meet the demand for its products or services could include all of the following except shortage of:

Relevant costs are those costs that relate to the future and are additional costs that will be incurred or result from a decision.

Jack received $560 from his grandmother. He decided to shop for a gift for himself and spent $7 for his bus fares. Jack decided to purchase a new bike for $560. For the same amount, he could have purchased a model GH-200 aeroplane that he adored and that would have provided $120 more benefit than the new bike. Jack was also considering a trip to Melbourne to visit his aunt, although he was not too keen about it. He was also interested in pursuing a course leading to a private pilot's licence, although he is a bit scared of heights. One month later, the price of the bike Jack purchased from Hut Ltd had gone down by $100. The bike had cost Hut Ltd $260 of labour and $170 of plant and equipment. The opportunity cost is most likely to be the cost of:

An opportunity cost is the maximum benefit that could be obtained from a resource if it were to be used for some other purpose.

The following information relates to the production cost of product PX 244. What is the contribution per unit of PX 244?