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

Potter 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 16.00 Fixed factory overhead Total costs \6 1.00 The fixed factory overhead costs are unavoidable.Paulson Company has offered to sell 10,000 units of the same part to Potter Company for $60 per unit.The facilities currently used to make the part could be rented out to another manufacturer for $100,000 per year.Potter Company should ________.

Laskowski 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.Hendricks Company has offered to sell 5,000 units of the same part to Laskowski Company for $14 per unit.The facilities currently used for the part could be used to make 5,000 units annually of a new product that would contribute $5 a unit to fixed expenses.No additional fixed costs would be incurred with the new product.Laskowski Company should ________.

Scarce resources include labor hours.

An equipment's book value is the original cost plus accumulated depreciation.

Mayfair 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 $15,000.Other data follows: Sales Value Separable Processing Sales Value Product at Split-Off Costs after Split-Off at Completion \ 62,000 \ 5,000 \ 88,000 12,500 6,500 19,500 9,400 5,000 12,000 Processing Product G beyond the split-off point will cause profits to ________.

Davidson Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: Direct materials \ 108,000 Direct labor 156,000 Variable factory overhead 70,000 Fixed factory overhead Total costs \5 02,000 Of the fixed factory overhead costs,$72,000 are avoidable.Assuming there is no other use for the facilities.What is the highest price Davidson Company should be willing to pay for 5,000 units of the part?

Determining the opportunity cost of a project depends on the alternatives available.

When evaluating alternative uses of a capital asset,equivalent decisions are reached using the opportunity cost approach and ________.

Woodridge 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 1,000 units.Other data follows: Sales Value Separable Processing Sales Value Product at Split-Off Costs after Split-Off at Completion P \ 12 \ 9 \ 21 G 10 4 17 A 15 6 19 Assume Woodridge Corporation processes the joint products beyond the split-off point that will maximize net income.Woodridge Corporation's net income is ________.

A proposed project will require the use of ten machines in a company.Each machine has five alternative uses.What is the simplest way to evaluate the desirability of the project?

Inverness 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,what is the difference in total relevant costs between the old machine and the new machine?

Benson 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 new machine is purchased is ________.

Heating and air conditioning costs are examples of common costs to the different departments in a retail store.

The term opportunity cost applies to a resource that a company ________.

Krakowski Company manufactures a part for its production cycle.The 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 16.00 Fixed factory overhead Total costs \ 61.00 The fixed factory overhead costs are unavoidable.Winters Company has offered to sell 10,000 units of the same part to Krakowski Company for $55 per unit.Assuming no other use for the facilities,Krakowski Company should ________.

A widespread problem in practice is that the decision model used by managers for ________ and the model used by their superiors in ________ are different.

Generally,companies use aggregate measures of performance when conducting performance evaluations of managers.

________ are relevant in deciding whether to add or delete a department from a department store.

Nestle Company paid $130,000 for a machine used to mill oats.The annual contribution margin from oat sales is $60,000.The machine could be sold for $80,000.The opportunity cost of producing the oats is ________.

Bronski Corporation manufactures two products,Simple and Complex.The following information was gathered: Simple Complex Selling price per unit \ 37.00 \ 26.00 Variable cost per unit 32.00 22.00 Total fixed costs are $18,000.Assume demand for either product exceeds the factory's capacity.It takes one hour of production time to make Simple and two hours to make Complex.The annual capacity of the plant is 10,000 hours.How many units of Simple and Complex should Bronski Corporation produce and sell to maximize profits?