Exam 6: Relevant Information for Special Decisions

Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's total variable manufacturing costs. Which type of cost is considered relevant to Outdoor Living's decision of whether to accept or reject the special order?

Dapper Dan produces a man's suit that sells for $200. Although the company's production capacity is 3,000 suits per year, only 2,500 suits are currently being produced and sold. At this level of production, the company incurs the following costs: Easton Clothiers has offered to purchase 500 suits as a one-time special purchase at a price of $135. Unit-level material cost per suit \ 80 Unit-level labor cost per suit \ 40 Unit-level overhead per suit \ 20 Batch-level set-up cost for each batch of 500 suits \ 1,200 Annual product-level costs \ 15,000 Allocated facility-level costs \ 50,000 Required: Prepare a quantitative analysis that indicates whether the special order should be accepted.

The Page Turner Publishing Company is trying to decide whether or not to accept a special order for its latest blockbuster. In making this decision, which level of costs will most likely be relevant to the decision?

Qualitative information is relevant when:

What are constraints? Provide an example.

Jason is trying to decide which one of two job offers he will accept. Several items are presented below: Which of the above items would be considered relevant costs? (1) Base salary \ 40,000 \ 40,000 (2) Overtime compensation Comp. time Hourly rate (3) Moving allowance \ 2,000 \ 2,000 (4) Signing bonus \ 1,000 \ 0 (5) Job search costs \ 500 \ 500

All of the following statements describe qualities of relevance except:

How can a manager's time horizon affect his/her decision making?

Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $6 to produce and has a contribution margin of $3, while each unit of Product B costs $12 and has a contribution margin of $4. What is the differential revenue for this decision?

When evaluating alternatives, what type of costs should be considered?

Ethan paid $3 for a bottle of ThirstAid. Later while on a hiking trip, she was offered $8 for the ThirstAid. Select the correct statement from the following:

Select the correct statement regarding relevant revenues.

For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.

For purposes of decision making, avoidable costs are costs that:

Select the correct statement regarding quantitative and qualitative information.

Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for 10,000 components are as follows: Material cost \ 5 per unit Labor cost \ 4 per unit Overhead \ 1 per unit Batch-level set-up costs for the year \ 5,000 Product-level manager's salary \ 18,000 Allocated facility-level costs \ 12,000 An outside company has offered to supply 10,000 units of the component for $12.50 each. If the company outsources the component, it will be able to rent out the idled factory space for $1,000 per month but will not terminate the product manager.Required: 1) Which items are not relevant to this outsourcing decision? 2) Identify any opportunity costs associated with this decision.3) Prepare a quantitative analysis that indicates whether the component should be outsourced.

Which costs are relevant for equipment replacement decisions?

Which of the following statements is true?

A company's compensation system for its managers should provide incentives for the managers to maximize the company's long-term profitability.

Which of the following costs is an example of a batch-level cost?