Question 1

Houston Corporation manufacturers a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: $$\begin{array} { l r } 
\text { Direct materials } & \$32\
\text { Direct labour } & 40 \
\text { Variable overhead } & 16 \
\text { Fixed overhead } & 32 \
\text { Total } & \$120\

\end{array}$$ Johnson Company has offered to sell Houston Corporation 5,000 units of the part for $112 per unit.If Houston Corporation accepts Johnson Company's offer,total fixed costs will be reduced to $60,000.What alternative is more desirable and by what amount is it more desirable?
$\begin{array}{lll}& \text { Alternative}&
 \text { Amount}\\end{array}$
A)$\begin{array}{lll}& \text { Make } &&& \$ 20,000 \\end{array}$
B)$\begin{array}{lll}& \text { Buy } &&&& \$ 40,000 \\end{array}$
C)$\begin{array}{lll}& \text { Buy } &&&& \$ 100,000 \\end{array}$
D)$\begin{array}{lll}& \text { Make }&& & \$ 120,000
\end{array}$

Accepted Answer

The answer of Houston Corporation manufacturers a part for its...

Question 2

Salda Industries employs 500 workers in the factory.These workers produced 85,000 units in last year.Due to a special order,the units produced in the current year increased to 95,000 units.However,Salda produced these units without adding workers.How is that possible?

Accepted Answer

A) The plant had some unused activity capacity. 
B) The employees were a flexible resource in this situation. 
C) The labour cost associated with the additional units sold will be a relevant cost. 
D) The employees worked overtime without pay.

Question 3

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: $\begin{array}{lr}
\text { Direct materrals } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead ( } 30 \% \text { variable) } & 1,800 \
\text { Selling expenses ( } 50 \% \text { variable) } & 900 \
\text { Administrative expenses (10\% variable) } &840\
\text { Total per unit }& \$ 6,900
\end{array}$
 Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
What is the profit earned by Reggie Corporation on the original 1,000 units?

Accepted Answer

A) $900,000 
B) $2,640,000 
C) $6,900,000 
D) $8,400,000

Question 4

Boone Products had the following unit costs: $\begin{array}{llr}
  \text { Direct materials } &\$24\
 \text {  Direct labour} &10\
 \text {  Variable factory overhead} &8\
 \text {Fixed factory overhead (allocated)  } &18
\end{array}$

A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints,1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.How much additional profit or loss will be generated by accepting the special order?

Accepted Answer

A) $4,000 profit 
B) $4,000 loss 
C) $24,000 loss 
D) $30,000 loss

Question 5

What are relevant costs? How do they relate to decision making?

Accepted Answer

The answer of What are relevant costs? How do they...

Question 6

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows:
Variable costs per unit:
$\begin{array}{lr}
\text { Variable costs per unit: }\
\text { Fixed costs per month:}\
\text { Direct materials } & \$ 9.00 \
\text { Factory overhead } & \$ 120,000 \
\text { Direct labour } & 4.50 \
\text { Selling and admin. } & 60,000 \
\text { Factory overhead } & 3.00\
\text { Total }&\$180,000\
\text { Distribution }&1.50\
\text { Total }&\$18.00
\end{array}$ The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.
-Refer to the figure.A Calgary wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit.The wholesaler would pay all distribution costs,but there would be additional fixed selling and administrative costs of $3,000.All other information remains the same as the original data.What is the effect on profits if the special order is accepted?

Accepted Answer

A) increase of $12,000 
B) increase of $57,000 
C) increase of $75,000 
D) decrease of $168,000

Question 7

Describe the steps in the decision-making process.What is the role of qualitative factors in tactical decision making?

Accepted Answer

The answer of Describe the steps in the decision-making process.What...

Question 8

What decision-making process consists of choosing among alternatives with an immediate or limited end in view?

Accepted Answer

A) long-run decision making 
B) tactical decision making 
C) universal decision making 
D) opportunity decision making

Question 9

The following information pertains to the EWIN Company’s three products:
$\begin{array}{lccc}
&\underline{M}&\underline{N}&\underline{O}\
 \text { Unit sales per month } & 9.000 & \underline{14,000} & 8,00 \
 \text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.5 \
 \text { Variable costs per unit } & 3.00 & 9.00 & 7 .00 \
 \text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$0 .50 \
 \text { Batches } & 5 & 10 &5 \
 \text { Setups } & 6 & 3 &1 \
\
\text { Direct fixed costs }\
\text { Advertising } & \$ 3,000 & \$ 2,000 & \$ 1,000 \
\text { Supervision } & 5,000 & 5,000 & 5,000\
\text { Common fired costs }
\end{array}$

$\begin{array}{lrrr}

\end{array}$ 
Inspecting products ($10,000)				
Materials handling ($4,000)				
Customer service ($5,000)				
Plant depreciation ($6,000)				
General administration ($8,000)
-Refer to the figure.When EWIN converted over to ABC it discovered the following:  What would be the operating income for EWIN?

Accepted Answer

A) $8,500 
B) $9,000 
C) $19,000 
D) $27,000

Question 10

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 150,000 \
\text { Direct labour } & 240,000 \
\text { Inspecting products } & 60,000 \
\text { Providing power } & 30,000 \
\text { Providing supervision } & 40,000 \
\text { Setting up equipment } & 60,000 \
\text { Moving materials } & 20,000 \
\text { Total } & \$ 600,000
\end{array}$
 If the component is not produced by Foster,inspection of products and provision of power costs will be only 10 percent of the production costs; moving materials costs and setting up equipment costs will be only 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount.An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

Accepted Answer

A) $25,000 increase 
B) $45,000 increase 
C) $90,000 decrease 
D) $90,000 increase

Question 11

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $\begin{array}{llr}
  \text {  Direct materials} &\$12\
 \text { Direct labour } &36\
 \text { Variable manufacturing overhead } &18\
 \text { Fixed manufacturing overhead } &24\
\end{array}$
 The company has the capacity to produce 90,000 units.The product regularly sells for $120.
-A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted,what would be the effect on operating income?

Accepted Answer

A) $75,000 decrease 
B) $249,000 increase 
C) $429,000 increase 
D) $495,000 increase

Question 12

Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:
$\begin{array}{cccc}
& \text { Sales Value } & \text { Additional } & \text { Sales Value of } \
\text { Product } & \text { at Split-Off } & \text { Processing Costs } & \text { Final Product }\
\text { W } & \$ 40,000 & \$  60,000 &\$ 80,000 \
 \mathrm{X} & \$ 12,000 & \$  4,000 & \$20,000 \
 \mathrm{Y} & \$ 20,000 & \$  32,000 & \$ 120,000 \
 \text { Z } & \$ 28,000 & \$ 20,000 & \$32,000 \
 & \$ 100,000 & \$1 16,000 & \$ 252,000 \

\end{array}$
-Refer to the figure.Which products should Manning process further?

Accepted Answer

A) W,X,Y and Z 
B) W,X,and Y 
C) X and Y 
D) X only

Question 13

Which of the following would be classified as flexible resources?

Accepted Answer

A) salaried employees 
B) depreciation on building 
C) fuel to generate electricity internally 
D) lease on machinery

Question 14

Information about three joint products follows:
$\begin{array}{lccc}
&\underline{A}&\underline{B} &\underline{C}\
\text { Anticipated production } & 5,000 \mathrm{~kg} & 1,000 \mathrm{~kg} & 2,000 \mathrm{~kg} \
\begin{array}{l}
\text { Selling price/kg at split-off } \
\text { Additional processing costs/ } \mathrm{kg}
\end{array} & \$ 10 & \$ 30 & \$ 16 \
\begin{array}{l}
\text { after split-off (all variable) }
\end{array}& \$ 6 & \$ 12 & \$ 24 \
\begin{array}{l}
\text { Selling price/kg after further } \
\text { processing }
\end{array} &\$20&\$40&\$50 \
\end{array}$   The cost of the joint process is $140,000.
-Refer to the figure.Assuming all of the sell-now or process-further decisions were correctly made,what will be the firm's income?

Accepted Answer

A) $596,000 
B) $610,000 
C) $654,000 
D) $736,000

Question 15

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: $\begin{array}{llr}
  \text {  Direct materials} &\$4\
 \text { Direct labour } &12\
 \text { Variable manufacturing overhead } &6\
 \text { Fixed manufacturing overhead } &8\
\end{array}$
 The company has the capacity to produce 40,000 units.The product regularly sells for $40.A wholesaler has offered to pay $32 a unit for 2,000 units.
If the firm is at capacity and the special order is accepted,what would be the effect on operating income?

Accepted Answer

A) $0 
B) $4,000 increase 
C) $16,000 decrease 
D) $20,000 increase

Question 16

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 150,000 \
\text { Direct labour } & 240,000 \
\text { Variable manufacturing overhead } & 90,000 \
\text { Fixed manufacturing overhead } & 120,000 \
\text { Total } & \$ 600,000
\end{array}$
 An outside supplier has offered to sell the component for $25.50.
Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Foster purchases the component from the outside supplier?

Accepted Answer

A) $15,000 increase 
B) $45,000 increase 
C) $75,000 decrease 
D) $105,000 increase

Question 17

According to the textbook,what does sound decision making consist of?

Accepted Answer

A) only concerns the short run 
B) consists of large-scale actions that serve a broad purpose 
C) consists of supporting the strategic objectives of the firm 
D) only concerns the long run

Question 18

In order for costs or benefits to be relevant,what must be true?

Accepted Answer

A) The costs relate to decisions for the future. 
B) The costs must be in per unit format. 
C) The costs relate to both the future and the past. 
D) The costs must be the same across the alternatives.

Question 19

Which of the following costs is relevant to a make-or-buy decision?

Accepted Answer

A) original cost of the production equipment 
B) annual depreciation of the equipment 
C) amount that would be received if the production equipment were sold 
D) cost of direct materials purchased last month and used to manufacture the component

Question 20

Which of the following is an important qualitative factor to consider regarding a special order?

Accepted Answer

A) variable costs associated with the special order 
B) avoidable fixed costs associated with the special order 
C) effect the sale of special-order units will have on the sale of regularly priced units 
D) incremental revenue from the special order

Exam 11: Tactical Decision Making