Exam 9: Relevant Costs for Decision Making

Why are qualitative factors often difficult to identify?

Factors that affect information quality in non-routine operating decisions include:

Wolff Ltd. sells product P at a price of $38 a unit. The per-unit cost data are: direct materials $8, direct labor $10, and overhead $12 (25% fixed and 75% variable). Wolff has sufficient capacity to accept a special order for 40,000 units just received. Selling costs associated with this order would be $3 per unit. The minimum selling price per unit should be

Relationships with resource suppliers are not a consideration in constrained resource decisions.

The number of lawnmowers available could be a constraint for a lawn care service.

Rapid growth may require a company to outsource certain products or services.

In a special order decision, which of the following is most likely a qualitative factor that managers should consider?

Wagner Ltd can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and fixed costs of $500,000. Wagner budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. If Wagner accepts the special order, profit before taxes will

The accessibility and timeliness of information can affect decision quality in non-routine situations.

Wagner Ltd can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and fixed costs of $500,000. Wagner budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. The relevant cost to Wagner of the special order is

Opportunity costs are often relevant in make or buy decisions.

In an outsourcing decision, fixed costs are

When resources are constrained, managers are most likely to use which of the following methods to develop decision making information

For manufacturers, outsourcing decisions are often known as

Uncertainties affect

A company will only incur an opportunity cost for a special order when

A key aspect of special order decisions is being at least as well off after the decision as before it.

The assumption that organisations seek to maximise short-term profits ignores

In non-routine situations, managers must identify the type of decision to be made. Which of the following is not an example of a non-routine operating decision?

Flox Hill Consulting has its own printing department with the following annual costs: The managers would like to outsource the printing function because it is not considered a core competency. The overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the printing department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the printing activities and coordinate all of the printing activities for the organisation with the outside printing vendor. The maximum amount that Flox Hill is willing to pay an outside firm to replace the printing services is