Exam 14: Decision Making: Relevant Costs and Benefits

The following costs are relevant to the decision situation cited except:

Disregard the information in the previous question.If HiTech eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super,what would be the impact on operating income?

The Shoe Department at the El Paso Department Store is being considered for closure.The following information relates to shoe activity: If 70% of the fixed operating costs are avoidable,should the Shoe Department be closed?

Consider the following statements about relevant costing and activity-based costing: I.The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing system. II.The concept of relevant costs and benefits must be modified for use with an activity-based costing system. III.Generally speaking,the decision maker can better associate relevant costs with the activities that drive them under an activity-based costing system than under a conventional product-costing system. Which of the above statements is (are)true?

A firm that decides to emphasize those goods with the highest contribution margin per unit may have made an incorrect decision when the company:

Which of the following characteristics would best explain the use of probabilities and expected values in a decision analysis?

Which of the following is Prudence's objective function?

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

Waltherboro Company recently discontinued the manufacture of product J15.The standard costs for this product were: A.Determine the current carrying value of the J15 inventory. A.Ending inventory: 800 units * $119 = $95,200 B.1.Scrap: no financial benefit. 2.Sell to exporter: 800 units * $12 = $9,600 3. The conversion of J15 into J16 will yield a $155 benefit,more than producing J16s directly.Note that the $119 cost of existing J15s is sunk. B.Evaluate each alternative and determine the financial benefit to Waltherboro if the alternative is pursueD.

Lido manufactures A and B from a joint process (cost = $80,000).Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $25 per pound.If Lido decides to process A beyond the split-off point,operating income will:

The amount of joint cost allocated to Bolts would be:

Flowers Company is operating at capacity and desires to add a new service to its rapidly expanding business.The service should be added as long as service revenues exceed:

Product costs incurred before the split-off point in a joint processing environment are termed:

In early July,Jim Lopez purchased a $70 ticket to the December 15 game of the Chicago Titans.(The Titans belong to the Midwest Football League and play their games outdoors on the shore of Lake Michigan. )Parking for the game was expected to cost approximately $22,and Lopez would probably spend another $15 for a souvenir program and food.It is now December 14.The Titans were having a miserable season and the temperature was expected to peak at 5 degrees on game day.Jim is thinking about skipping the game and taking his wife to the movies and dinner,at a cost of $50.The amount of sunk cost that should influence Jim's decision to spend some time with his wife is:

Coastal Airlines has a significant presence at the San Jose International Airport and therefore operates the Emerald Club,which is across from gate 36 in terminal 1.The Emerald 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 Coastal 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?

Torrey Pines is studying whether to outsource its Human Resources (H/R)activities.Salaried professionals who earn $390,000 would be terminated;in contrast,administrative assistants who earn $120,000 would be transferred elsewhere in the organization.Miscellaneous departmental overhead (e.g. ,supplies,copy charges,overnight delivery)is expected to decrease by $30,000,and $25,000 of corporate overhead,previously allocated to Human Resources,would be picked up by other departments.If Torrey Pines can secure needed H/R services locally for $410,000,how much would the company benefit by outsourcing?

Wright 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?

The term "outsourcing" is most closely associated with:

Assuming there is unlimited demand for both products and Johnson has 10,000 machine hours available,how many units of each product should be produced and sold?

Lee-Vie Company has met all production requirements for the current month and has an opportunity to manufacture additional units with its excess capacity.Unit selling prices and unit costs for three product lines follow. A. When there is no limit on production capacity,Regular should be manufactured because it has the highest contribution margin per unit. A.If Lee-Vie has excess machine capacity and can add more labor as needed (i.e. ,neither machine capacity nor labor is a constraint),which product is the most attractive to produce? B. When labor is in short supply,Plain should be manufactured because it has the highest contribution margin per direct labor hour. B.If Lee-Vie has excess machine capacity but a limited amount of labor time available,which product or products should be manufactured in the excess capacity?