Exam 11: Decision Making and Relevant Information

How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?

Ratzlaff Company has a current production level of 20,000 units per month.Unit costs at this level are: Direct materials \ 0.25 Direct labor 0.40 Variable overhead 0.15 Fixed overhead 0.20 Marketing - fixed 0.20 Marketing/distribution - variable 0.40 Current monthly sales are 18,000 units.Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each.Current sales would NOT be affected by the one-time-only special order,and variable marketing/distribution costs would NOT be incurred on the special order.What is Ratzlaff Company's change in operating profits if the special order is accepted?

An incremental cost is the difference in total irrelevant costs between two alternatives.

For short-run product-mix decisions,managers should focus on minimizing total fixed costs.

Answer the following questions using the information below: Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials \ 45.00 Direct labor 35.00 Variable overhead 33.00 Fixed overhead 30.00 Total \1 43.00 Crayola Technologies Inc. has contacted Rubium with an offer to sell 5,000 of the subassemblies for $135.00 each. Rubium will eliminate $85,000 of fixed overhead if it accepts the proposal. -Should Rubium make or buy the subassemblies? What is the difference between the two alternatives?

Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?

Which of the following is true of depreciation cost?

Answer the following questions using the information below: Coroid Manufacturers Inc. is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials \ 120 Direct labor 60 Manufacturing support 105 Marketing costs 45 Fixed costs: Manufacturing support 135 Marketing costs Total costs 510 Markup (50\%) 255 Targeted selling price \ 765 -For Coroid Manufacturers Inc.,what is the minimum acceptable price of this special order?

In a one-time special order situation,if the price offered by the buyer is less than the absorption cost per unit,the special order may still be profitable since absorption costs include allocated fixed manufacturing overhead.

How many of each product should be produced per month using the short-run profit maximizing strategy? Small Medium Large A) 0 120 12 B) 60 120 0 C) 100 100 0 D) 100 20 40

Differential revenue is the additional total revenue from an activity.

When opportunity costs exist,they are always relevant.

Answer the following questions using the information below: Pizza For Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Existing van New van Ori ginal cost \ 50,000 \ 90,000 Annual operating cost \ 17,500 \ 10,000 Accumulated depreciation \ 30,000 - Current salvage value of the existing van \ 22,500 - Remaining life 10 years 10 years Salvage value in 10 years \ 0 \ 0 Annual depreciation \ 2,000 \ 9,000 -Sunk costs include ________.

A segment has the following data: Sales \ 630,000 Variable costs 336,000 Fixed costs 325,500 What will be the incremental effect on net income if this segment is eliminated,assuming the fixed costs will be allocated to profitable segments?

The management accountant for the Chocolate S'more Company has prepared the following income statement for the most current year: $\begin{array}{lrrrr}&\text { Chocolate }&\text { other Candy }&\text { Fudge }&\text { Total }\\\text { Sales } & \$ 40,000 & \$ 25,000 & \$ 35,000 & \$ 100,000 \\\text { Cost of goods sold } & 26,000 & 15,000 & 19,000 & 60,000 \\\text { Contribution margin } & 14,000 & 10,000 & 16,000 & 40,000 \\\text { Delivery and ordering costs } & 2,000 & 3,000 & 2,000 & 7,000\\\text { Rent (per sq. foot used) } & 3,000 & 3,000 & 2,000 & 8,000 \\\text { Allocated corporate costs } & 5,000 & 5,000 & 5,000 & 15,000 \\\text { Corporate profit } & \$ 4,000 & \$(1,000) & \$ 7,000 & \$ 10,000\end{array}$ a.Do you recommend discontinuing the Other Candy product line? Why or why not? b.If the Chocolate product line had been discontinued,corporate profits for the current year would have decreased by what amount?

Local Steel Construction Company produces two products,steel and wood beams.Steel beams have a unit contribution margin of $200,and wood beams have a unit contribution margin of $150.The demand for steel beams exceeds Local Steel Construction Company's production capacity,which is limited by available direct labor and machine-hours.The maximum demand for wood beams is 90 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits. Direct manufacturing labor is limited to 3,000 hours a week and 1,000 hours is all that the company's outdated machines can run a week.The steel beams require 120 hours of labor and 60 machine-hours.Wood beams require 150 labor hours and 120 machine-hours. Required: Formulate the

The formal process of choosing between alternatives is known as a(n)________.

Favata Corporation manufactures two products,AA and CC.The following information was available: AA CC Selling price per unit \ 37 \ 26 Variable cost per unit 32 22 Total fixed costs \ 18,000 If Favata Corporation could produce and sell either 10,000 units of AA or 5,000 units of CC at full capacity,it should produce and sell ________.

Book value is defined as the ________.

Employee morale at Dos Santos,Inc.,is very high.This type of information is an example of ________.