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

Differential cost is the difference in ________ between two alternatives.

Opportunity costs apply to resources that a company has committed to purchase.

Gonzalez Company produces a part that is used in the manufacture of one of its products.The annual costs associated with the production of 5,000 units of this part are as follows: Direct materials \ 100,000 Direct labor 56,000 Variable factory overhead 72,000 Fixed factory overhead Total costs \3 96,000 Of the fixed factory overhead costs,$72,000 are avoidable.Another company has offered to sell 5,000 units of the same part to Gonzalez for $70.00 per unit.The facilities currently used to make the part can be rented out to another manufacturer for $72,000 per year.What should Gonzalez Company do?

The allocation of joint costs to joint products should affect the decision to sell or process the joint products further.

Incremental costs are the ________ generated by a proposed alternative.

A company has 10,000 hours of capacity and manufactures two products.Product 1 takes 2 hours per unit.Product 2 takes 3 hours per unit.The contribution margin per unit for Product 1 is $5.The contribution margin per unit for Product 2 is $6.The demand for either product exceeds the factory capacity.Which product or products should be manufactured?

In a make-or-buy decision for a part for a product,which of the following qualitative factors play a role?

The ________ is the juncture in manufacturing where the joint products become individually identifiable.

Benton Company manufactures a part for its production cycle.The costs per unit for 38,000 units of the part are as follows: Per Unit Direct materials \ 3.00 Direct labor 5.00 Variable factory overhead 3.00 Fixed factory overhead Total costs \ 15.00 The fixed factory overhead costs are unavoidable.Assume no other use for the facilities.What is the highest price Benton Company should pay for the part from an outside supplier?

When deciding whether to add or delete a department,managers should keep the department as long as ________ from the department exceeds ________.

A company has 100,000 hours of capacity and manufactures two products,Product X and Product Z.Neither product has enough demand to utilize the entire capacity,but the combined demand of both products exceeds the capacity of the plant.It takes one hour to make one unit of Product X and two hours to make one unit of Product Z.The following information is available: Product X Product Z Units produced from capacity available 100,000 50,000 Contribution margin per unit \ 20 \ 30 What product or products should be made?

Fast Company has just decided to outsource the production of a part for a product.Assume Fast Company leaves the area of the manufacturing plant idle where it was producing the outsourced part.It has no alternative uses of the plant.What is the opportunity cost of the idle area of the manufacturing plant to Fast Company?

Bally Company has three product lines: A,B and C.The following annual information is available: $\begin{array}{llll}&\text { Product A }&\text { Product B }&\text { Product C }\\\text { Sales } & \$ 60,000 & \$ 90,000 & \$ 24,000 \\\text { Variable costs } & \underline{36,000} & \underline{48,000} & 20,000\\\text { Contribution margin } & 24,000 & 42,000 & 4,000 \\\text { Avoidable fixed costs } & 9,000 & 18,000 & 3,000 \\\text { Unavoidable fixed costs } & 6,000 & 9,000 & 2,400\\\text { Operating income(loss) }&\$9,000&\$15,000&\$(1,400)\end{array}$ Assume Bally Company drops Product C.What will happen to operating income?

If the limiting factor is demand,the most profitable product is the one with the highest contribution margin per unit.

When manufacturing multiple products that are not initially separately identifiable,manufacturing costs incurred after the split-off point are known as ________ costs.

In a make-or-buy decision,which of the following is the fundamental question that is asked in making the decision?

Ernie Company is considering replacing a machine that is currently used in the production process.The ________ is irrelevant to the replacement decision.

When making a decision to replace some old equipment with new equipment,the book value of the old equipment is irrelevant information.

Lisle 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 \ 9 \ 21 G 10 3 17 A 15 6 19 Product G ________.

When considering the replacement of old equipment,which of the following item is relevant?