Exam 9: Decision Making and Relevant Information

The manager at the Doughnut Factory is considering replacing the old doughnut machine with a newer model.The managerial accountant provided the following information: Required: Discuss whether the following costs are relevant or irrelevant costs: Book value Current disposal value on old machine Cost of new machine

Overhead costs allocated to a sales office and individual customers are always ________.

The amount of joint costs incurred before the splitoff point are ________ in deciding whether to process further.

Is book value of existing equipment relevant in equipment-replacement decisions?

In which step of the performance-evaluation model would the manager replace the machine rather than keep it?

Which of the following is not a desirable management action to relieve the bottleneck constraint of the assembly operation?

List and describe the three measures defined by the theory of constraint.

An incremental cost is the additional total cost incurred for an activity.

Rent,general administration,and corporate-office costs are ________ costs that will not change if a manager drops an account.

Seedem Manufacturing was approached by the international seed firm,Planting Concepts,to request a one-time-only special order for a product similar to the domestic product produced at Seedem Manufacturing,which has excess capacity.The managerial accountant reported the following data,per unit,that is charged to regular clients: Required: Compute the full cost of the product,the contribution margin per unit,and the minimum acceptable price for the one-time-only special order.

International outsourcing requires managers to evaluate manufacturing and transportation cost,exchange rate risks,and the other strategic and qualitative factors.For example,quality and reliability and efficiency of the supply chain.

To maximize operating income,the manager:

Incremental costs:

The manager at Frame Manufacturing reported the cost to product Frame A was $22 per unit in 2011 and in 2012 the cost increased to $24 per unit.In 2013,the manager at a local supplier offered to supply Frame A for $20 per unit.For the make-or-buy decision:

The manager at Elite Transportation Company is exploring options to determine if it is cost effective to purchase the new vehicle,or keep the existing vehicle.The new vehicle could offer a considerable amount of savings in operating costs.The manager compiled the following information: Required: Compute the book value of the existing van and identify the irrelevant costs.If the manager purchases the new vehicle,what is the impact on operating income over the next ten years?

The sum of all costs in a particular business function of the value chain,are called ________.

The Future Manufacturing Company employed a new Operations Manager.The previous manager did not keep accurate records and the new manager does not have an accurate account of the departmental historical data in 2012 because the employees received a wage increase.The managerial accountant provided the new operations manager the following historical data: The Executive Director asked the new manager how much the department would save if they considered a reorganization of the manufacturing operations.The specifically asked if a reduction in staff,from 25 full-time employees,to 20 full-time workers is cost effective because the new computer system can absorb the job duties of those 5 employees.The employees heard rumors about a potential layoff in the department and the employee morale is low. Next,the new manager wants to predict the amount of manufacturing hours based on a reduction in staff. Required: Compute the historical cost data,the predicted cost data,and discuss the amount of savings to the department if they reorganize and eliminate 5 workers.Next,compute the new cost data if the manager provides each employee a 10% salary increase.Will an increase in salary increase employee morale? Why or why not?

How do managers determine the most profitable production schedule and the most profitable product mix?

The manager at the Plymouth Manufacturing Company reported a current production level of 22,000 units per month.The managerial accountant reported the following unit-level costs: The manager reported monthly sales of 20,000 units.The Salem Company contacted the manager at Plymouth Manufacturing and inquired about the purchase of 1,525 units at $2.10 per unit.The manager noted that current sales would not be affected by the one-time-only special order,and variable marketing/distribution costs would not be incurred with the special order.What is the change in operating profits at Plymouth Manufacturing Company's if the special order is accepted?

Depreciation on equipment that a company has already acquired is a past cost and therefore irrelevant.