Exam 6: Relevant Information for Decision Making With a Focus on Operational Decisions

Zach Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year.If 40,000 units are produced and sold in a year,what is the total cost per unit?

Inventory turnover is the number of times the average inventory is sold per year.

Past costs are irrelevant in equipment replacement decisions.

Separable costs are part of a joint process and cannot be exclusively identified with individual products.

Which of the following cost is relevant to the decision whether to process joint products beyond the split-off point?

When making a make-or-buy decision for a part used in a product,which of the following item is relevant to the decision?

Naperville Corporation has a joint process that produces three products: P,G and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $25,000.The production level for each product is 10,000 units.Other data follows: Sales Value Separable Processing Sales Value Product at Split-Off Costs after Split-Off at Completion P \ 12 \ 8 \ 21 G 10 4 17 A 15 6 19 Processing Product P beyond the split-off point will cause profits to ________.

The most recent income statement for the Venetian Branch of Palm Harbor Bank is presented below: $\begin{array}{ll}\text { Sales } & \$ 57,000 \\\text { Variable costs } & 31,500\\\text { Contribution margin } & 25,500 \\\text { Avoidable fixed costs } & 13,500 \\\text { Unavoidable fixed costs } & 20,000\\\text { Operating loss }&\$(8,000)\end{array}$ Palm Harbor Bank is thinking about eliminating the Venetian Branch.If the branch is eliminated,Palm Harbor Bank's operating income will ________.

If demand is the limiting factor,and there are no other scarce resources,managers should emphasize the product with ________.

When analyzing alternatives,it is not advisable to use fixed costs per unit because a new fixed cost per unit must be calculated for every different volume of production.

Gray Lake Company is considering the replacement of a machine that is presently used in production.The following data are available: Old Machine NEW Machine Original cost \ 57,000 \ 35,000 Useful life in years 17 5 Current age in years 12 0 Book value \ 39,000 - Disposal value now \ 8,000 - Disposal value in 5 years 0 0 Annual cash operating costs \ 7,000 \ 4,000 Adding all five years together,the total relevant costs to consider if the old machine is not replaced is ________.

The following is a useful rule of thumb when making operational decisions.Managers should NOT use ________.

Which of the following costs is NOT relevant to an equipment replacement decision?

________ is the item that restricts or constrains the production or sale of a product.

Differential revenue is the difference in ________ between two alternatives.

The salary foregone by a person who quits a job to start a business is an example of a(n)________.

Park Ridge Company is considering the replacement of a machine that is presently used in production.The following data are available: Original cost \ 200,000 \ 160,000 Wseful life in years 10 5 Current age in years 5 0 Fook value \ 100,000 - Disposal value now \ 32,000 0 Disposal value in 5 years 0 \ 14,000 Adding all five years together,the total relevant costs to consider if the old machine is kept is ________.

Golden Company manufactures a part for its production cycle.The annual costs per unit for 10,000 units of the part are as follows: Per Unit Direct materials \ 20.00 Direct labor 15.00 Variable factory overhead 6.00 Fixed factory overhead Total costs \5 1.00 The fixed factory overhead costs are unavoidable.Olson Company has offered to sell 10,000 units of the same part to Golden Company for $55 per unit.The facilities currently used to make the part could be used to make 10,000 units per year of a new product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred with the new product.Golden Company should ________.

Bonneville Company is producing a subassembly used in the production of a product.The costs incurred for the subassembly follow: Per Unit Direct materials \ 6.00 Direct labor 4.00 Variable factory overhead 1.00 Fixed supervisor salary 3.00 Depreciation expense on factory equipment 2.00 General fixed factory overhead allocated Total costs \ 21.00 The above per unit costs are based on 8,000 units.An outside supplier will provide 8,000 subassemblies for $19 per unit.The supervisor will be terminated if the subassemblies are not produced in house.The idle factory will be used to manufacture another product with a contribution margin of $60,000.What should Bonneville do?

Amanda Company is considering the replacement of a machine that is presently used in production.The following data are available: Old Machine NEW Machine Original cost \ 200,000 \ 160,000 Useful life in years 10 5 Current age in years 5 0 Book value \ 100,000 - Disposal value now \ 32,000 - Disposal value in 5 years 0 0 Annual cash operating costs \ 20,000 \ 14,000 Adding all five years together,the total relevant costs to consider if the new machine is purchased is ________.