Exam 19: Information for Decisions: Relevant Costs and Benefits

For a firm that currently makes a particular component,which of the following are qualitative factors that would be considered following a quantitative analysis in favour of buying?

In order for information to be relevant,the decision to be made must have an effect on: i.future cost or revenues ii.past cost or revenues iii.the timeliness of information

In a decision to keep or replace a piece of equipment,calculate the total yearly expense of keeping the old equipment using the following data.

Sound Systems reported the following results from the sale of 24 000 radios: Sound Systems expects similar operating results during the current year.Rhythm Systems has offered to purchase 3000 radios at $16 each.Sound Systems estimates approximately 5000 additional units could be made with the capacity currently available in the factory.The owner of Sound Systems is in favour of accepting the order.She feels it would be profitable because no variable selling costs will be incurred.The plant manager is against acceptance because his 'full cost' of production is $17.Determine the change in profit if the special order is accepted.

Efficient decision-making tends to consider relevant information only and this information focuses on incremental revenue and expenses.

The split-off point is that stage in the manufacturing process where the products being manufactured can finally be identified as separate products.

In the relative sales value method,joint costs are allocated between products:

Which of the following is least likely to be classified as a tactical decision?

Xebex Pty Ltd is considering whether to make or buy a component used in the production of Faz Machines.The annual cost of producing the 100 000 components used by the company is as follows.If Xebex were to discontinue production of the component,direct fixed manufacturing costs would be reduced by 80 per cent.What are the irrelevant costs in the decision?

Sleepo Ltd has been manufacturing only one type of alarm clock,the PlainSnooze model.The company is considering developing some modifications to make another,more advanced model.Two options are available: the ToughSnooze and the MusicSnooze.Both ToughSnooze and MusicSnooze will start with the same processes as the PlainSnooze model,but with additional advanced functions.ToughSnooze has a voice activated snooze function,as well as an 'indestructible' aluminium casing,created for people who throw their alarm clocks around.The MusicSnooze also has a voice activated snooze function,but instead of the tough aluminium casing,it has a 'music choice' function.In choosing between making the ToughSnooze or the MusicSnooze,which of the following costs are relevant? I The cost of building the PlainSnooze model Ii)The cost of building a voice activated snooze function.iii The cost of building an "indestructible" aluminium cover.iv The cost of building "music choice" function.

Which of the following statements in relation to making tactical decisions is incorrect?

A firm has the following cost data per unit.Calculate total cost per unit.

Which of the following statements regarding short-term decisions is true?

The term given to the practice of having a process undertaken by an external firm rather than a company doing it itself,is outsourcing.

Which of the following statements about variable and fixed expenses,as they relate to relevance,is/are true? i.Variable expenses may or may not be relevant costs ii.Variable expenses are always relevant. iii.Fixed expenses are never relevant.