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

Chicago Corporation has a joint process that produces three products: X,Y and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other data follows: Sales Value Separable Processing Sales Value Product at Split-Off Costs after Split-Off at Completion X \ 128,000 \ 16,000 \ 152,000 Y 50,000 26,000 76,000 Z 25,600 20,000 40,000 Processing Product X beyond the split-off point will cause profits to ________.

Marjorie Company has an idle machine that originally cost $200,000.The book value of the machine is $100,000.The company is considering three alternative uses of the idle machine: Alternative 1: Disposal of machine.Disposal value of machine is $50,000. Alternative 2: Use the idle machine to increase production of Product A.Contribution margin from additional sales of Product A is estimated to be $60,000. Alternative 3: Use the idle machine to increase production of Product B.Contribution margin from additional sales of Product B is estimated to be $70,000. When considering Alternative 3,what is the opportunity cost of the idle machine?

Christian Company manufactures a part for its production cycle.The annual costs per unit for 5,000 units of the part are as follows: Per Unit Direct materials \ 3.00 Direct labor 5.00 Variable factory overhead 4.00 Fixed factory overhead Total costs \ 14.00 The fixed factory overhead costs are unavoidable.Another company has offered to sell 5,000 units of the same part to Christian Company for $15 per unit.The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year.Christian Company should ________.

Southridge Corporation has a joint process that produces two products: A and B.Each product may be sold at the split-off point or processed further and then sold.Joint-processing costs for a year are $20,000. Product A can be sold at the split-off point for $32,000.Alternatively,Product A can be processed further and sold for $40,000.Additional processing costs are $5,000. When deciding whether to sell Product A at the split-off point or to process further,the ________ is NOT relevant.

Blue Company is a small company with limited expertise with customer service.Blue Company has a contract with New Company to handle all of Blue Company's customer service needs.For Blue Company,this is an example of ________.

Opportunity costs and outlay costs are widely used synonyms.

A scarce resource restricts or constrains the production or sale of a product.

Foster Corporation has a joint process,which produces three products,A,B and C.Each product may be sold at split-off or processed further and then sold.Joint processing costs for a year are $40,000.Other relevant data are: Sales Value Separable Processing Sales Value Product at Split-Off Costs after Split-Off at Completion A \ 15,500 \ 2,200 \ 17,700 B 18,000 8,000 23,000 C 24,000 11,500 37,500 Required: A) Which products should be processed further? Why? B) If the Foster Company maximizes profits, what is the operating income?

Gurnee 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,what is the difference in total relevant costs between the old and new machines?

Mueller Company is considering the replacement of equipment used in operations.The following data are available: Old Equipment New Equipment Original cost \ 93,000 \ 60,000 Useful life in years 13 6 Current age in years 7 0 Book value \ 57,000 - Disposal value now \ 50,000 - Disposal value in 6 years 0 0 Annual cash operating costs \ 14,000 \ 11,000 Required: A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the items together for the next 6 years. B) Should the old equipment be replaced?

It is profitable to extend processing or to incur additional costs on a joint product if the additional revenue exceeds the joint cost.

Managers may be tempted to make decisions that are not in the best interests of the company because ________.

A company can sell any mix of Product A and Product B at full capacity.The company has 100,000 hours of capacity.The demand for each product exceeds the capacity.It takes one hour to make one unit of Product A and two hours to make one unit of Product B.The following information is available: Product A Product B Units produced from capacity available 100,000 50,000 Contribution margin per unit \ 20 \ 30 If capacity is the limiting factor,which product should be produced?

Unavoidable costs are never relevant in deciding whether to eliminate a product or department.

Boston Corporation has a joint process that produces three products: X,Y and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other data follows: Sales Value Separable Processing Sales Value Product at Split-Off Costs after Split-Off at Completion X \ 128,000 \ 16,000 \ 160,000 Y 50,000 25,000 77,000 Z 25,600 20,000 40,000 Processing Product Y beyond the split-off point will cause profits to ________.

Book value on a depreciable asset is defined as ________.

What is the most common value-chain function outsourced in most businesses?

Nancy Company has an idle machine that originally cost $200,000.The book value of the machine is $100,000.The company is considering three alternative uses of the idle machine: Alternative 1: Disposal of machine.Disposal value of machine is $50,000. Alternative 2: Use the idle machine to increase production of Product A.Contribution margin from additional sales of Product A is estimated to be $60,000. Alternative 3: Use the idle machine to increase production of Product B.Contribution margin from additional sales of Product B is estimated to be $70,000. When considering the opportunity cost of the idle machine,what is the net financial benefit from Alternative 3?

Outsourcing is the purchase of products or services by a company from an outside supplier.

In a make-or-buy decision,if plant facilities will remain idle when the decision is made to outsource a part used in a product,then the opportunity cost of the plant facilities is zero.Assume there are no alternative uses of the plant facilities available.