Tb_tdm - Relevant Cost

Chapter 12 Tactical Decision Making

MULTIPLE CHOICE

1.

Decision Decision making making that consi consists sts of choos choosing ing among among alterna alternative tivess with with an immedia immediate te or limit limited ed end in in view is a. capital decision making b. tactical decision making making c. strategic de decision ma making d. operational de decision ma making

ANS: B $B%: 1 +.

,hi ,hich of the the fol follow lowing ing is is NOT incl-ded in a tactical decisionmaking model/ a. defi define ne the prob roblem lem and and ide iden ntif* tif* alte altern rnaative tive solol-tion ions b. identif* costs and benefits for each feasible feasible alternative c. assess 0-alitative factors d. all of the above are incl-ded in the model

ANS: D $B%: 1 2.

DIF: 1 !F: p. p . "1 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

,hich ,hich of the the followin following g is a 0-ali 0-alitativ tativee factor factor that that sho-ld sho-ld be consi considered dered when evaleval-atin ating g a makeor makeor b-* decision/ a. the 0-ali -alit* t* of the the o-tsid tsidee s-p s-pplie plier4 r4ss prodrod-ct ct b. whether the o-tside o-tside s-pplier can provide provide the needed 0-antities 0-antities c. whet whethe herr the the o-ts o-tsid idee s-pp s-ppli lier er can can prov provid idee the the pro prodd-ct ct ,5!N ,5!N it is need needed ed d. all of the above

ANS: D $B%: 1 ".

DIF: + !F: p. p . "1 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

,hat ,hat is the the first first step step in the the tact tactica icall decis decision ion making making mode model/ l/ a. iden identi tif* f* the the cost costss and and bene benefi fits ts asso associ ciat ated ed with with feas feasib ible le alte altern rnat ativ ives es b. define the problem c. identif* the alternatives d. assess 0-alitative factors

ANS: B $B%: 1 3.

DIF: 1 !F: p. p . "1# NA&: AA'SB eflective thinking ( I)A Decision anal*sis

DIF: 2 !F: p. p . "16 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

For a cost or reven-e reven-e to be be relevant relevant to a partic partic-lar -lar decision7 decision7 the cost cost or or reven-e reven-e m-st m-st a. diffe ifferr bet betw ween een the the alter ltern nativ atives es bei being con consider idered ed b. be a past cost c. be a f-t-re cost d. both a and c are correct

1 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

+

)anagerial Acco-nting

ANS: D $B%: 1 #.

A f-t-re f-t-re cost cost that that is the same same -nder -nder diffe different rent alternati alternatives ves is is consider considered ed to be a. relevant for all alternatives b. irrelevant for all alternatives alternatives c. relevant on onl* fo for th the mo most li likel* al alternative d. rele relev vant ant onl onl* for the leas leastt likel ikel* * alte lternat rnatiive

ANS: B $B%: 1 .

DIF: 1 !F: p. p . "+8 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

&he A-tomobi A-tomobile le Divisio Division n of Saf& Saf&'o 'o Ins-ranc Ins-rancee emplo*s emplo*s three three claims claims proces processors sors capable capable of processing "7888 claims claims each. &he division division c-rrentl* processes processes 1+7888 claims. &he manager manager has recentl* been approached b* two sister divisions. Division A wo-ld like the A-tomobile Division to process appro;imatel* appro;imatel* +7888 claims. Division Division B wo-ld like the A-tomobile Division Division to process appro;imatel* "7888 claims. &he A-tomobile Division wo-ld be compensated b* Division A or Division B for processing these claims. Ass-me that these are m-t-all* e;cl-sive alternatives. 'laims processor salar* cost is relevant for a. the Di Division A alternative onl* b. the Division B alternative alternative onl* c. bot both th the Div Diviisio sion A and and the the Divis ivisio ion n B alter lterna nattive ive d. neit neith her the the Div Divis isio ion n A nor the Divi ivisio sion B al altern ternaativ tive

ANS: B $B%: 1 6.

DIF: + !F: p. p . "+8 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

9999 are the the res-lt res-lt of of past past decision decisionss and cannot cannot be changed changed b* c-rrent c-rrent or or f-t-re f-t-re action actions. s. a. S-nk costs b. $pport-nit* costs costs c. Avoidable costs d. Differential costs

ANS: A $B%: 1 .



,hic ,hich h of of the the foll follow owin ing g cos costs ts is NOT relevant for special decisions/ a. incremental costs b. s-nk costs c. avoidable costs d. all of the above

ANS: B $B%: 1


18. 18. ,hic ,hich h of the the fol follo lowi wing ng is is NOT a s-nk cost/ a. depreciation on on an an e; e;isting as asset b. ac0-isition cost cost of an asset p-rchased one *ear *ear ago c. disposal val-e of an e;isting asset d. All of the above are s-nk costs.

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

+


ANS: D $B%: 1 #.

A f-t-re f-t-re cost cost that that is the same same -nder -nder diffe different rent alternati alternatives ves is is consider considered ed to be a. relevant for all alternatives b. irrelevant for all alternatives alternatives c. relevant on onl* fo for th the mo most li likel* al alternative d. rele relev vant ant onl onl* for the leas leastt likel ikel* * alte lternat rnatiive

ANS: B $B%: 1 .


&he A-tomobi A-tomobile le Divisio Division n of Saf& Saf&'o 'o Ins-ranc Ins-rancee emplo*s emplo*s three three claims claims proces processors sors capable capable of processing "7888 claims claims each. &he division division c-rrentl* processes processes 1+7888 claims. &he manager manager has recentl* been approached b* two sister divisions. Division A wo-ld like the A-tomobile Division to process appro;imatel* appro;imatel* +7888 claims. Division Division B wo-ld like the A-tomobile Division Division to process appro;imatel* "7888 claims. &he A-tomobile Division wo-ld be compensated b* Division A or Division B for processing these claims. Ass-me that these are m-t-all* e;cl-sive alternatives. 'laims processor salar* cost is relevant for a. the Di Division A alternative onl* b. the Division B alternative alternative onl* c. bot both th the Div Diviisio sion A and and the the Divis ivisio ion n B alter lterna nattive ive d. neit neith her the the Div Divis isio ion n A nor the Divi ivisio sion B al altern ternaativ tive

ANS: B $B%: 1 6.


9999 are the the res-lt res-lt of of past past decision decisionss and cannot cannot be changed changed b* c-rrent c-rrent or or f-t-re f-t-re action actions. s. a. S-nk costs b. $pport-nit* costs costs c. Avoidable costs d. Differential costs

ANS: A $B%: 1 .



,hic ,hich h of of the the foll follow owin ing g cos costs ts is NOT relevant for special decisions/ a. incremental costs b. s-nk costs c. avoidable costs d. all of the above

ANS: B $B%: 1


18. 18. ,hic ,hich h of the the fol follo lowi wing ng is is NOT a s-nk cost/ a. depreciation on on an an e; e;isting as asset b. ac0-isition cost cost of an asset p-rchased one *ear *ear ago c. disposal val-e of an e;isting asset d. All of the above are s-nk costs.


'hapter 1+<&actical Decision )aking ANS: ' $B%: 1 11. 11.


!thics !thics in tactica tacticall decision decision making making incl-d incl-des es which which of the follo following wing// a. maki making ng ssho hort rtrr-n n deci decisi sion onss to s-pp s-ppor ortt the the long longer ert ter erm m stra strate tegi gicc ob=e ob=ect ctiv ives es of of the the firm firm b. la*ing off emplo*ees emplo*ees for the c-rrent *ear4s performance performance eval-ation c. ensens-ri ring ng tha thatt tact tactic ical al ob= ob=ec ecti tive vess are are cons consis iste tent nt wit with h the the comp compan an*4 *4ss miss missio ions ns and and goa goals ls d. both a and c above

ANS: D $B%: 1


1+. eso-rces eso-rces that that can be easil* easil* p-rchased p-rchased in the the amo-nt amo-nt needed and and at the time of -se -se are a. committed reso-rces b. fle;ible reso-rces c. activit*based re reso-rces d. none of the above ANS: B $B%: +

DIF: 1 !F: p. p . "++ NA&: AA'SB eflective thinking ( I)A Decision anal*sis

12. eso-rces eso-rces that that are p-rchased p-rchased before before the* the* are -sed and and ma* or ma* not not have -n-sed -n-sed capacit* capacit* are are a. committed reso-rces b. fle;ible reso-rces c. activit*based re reso-rces d. none of the above ANS: A $B%: +


13. 'ommit 'ommitted ted resoreso-rce rcess for m-lti m-ltiple ple peri periods ods a. concern ta tactical de decision ma making b. -s-all* are not relevant relevant to tactical decision decision making c. -s-all* become s-nk costs d. Both b and c are correct. ANS: D $B%: + 1". ,hich ,hich a. b. c. d. ANS: B $B%: 2

DIF: + !F: p. p . "+3 NA&: AA'SB eflective thinking ( I)A Decision anal*sis of of the the follo followin wing g costs costs is NOT relevant to a makeorb-* decision/ >18 >187888 7888 of di direct rect labo abor -s -sed to man man-fac fact-re t-re the the par parts ts >287888 of depreciation depreciation on the e0-ipment -sed -sed to man-fact-re the parts the the s-pe s-perv rvis isor or4s 4s sal salar ar* * of >+"7 >+"788 8887 87 whi which ch wowo-ld ld be be avoi avoide ded d if the the part part is is p-rc p-rcha hase sed d from from an o-tside s-pplier >1"7 >1"788 888 8 in in rent rent from from lea leasi sing ng the the prod prod-c -cti tion on spac spacee to anot anothe herr comp compan an* * if if the the part part is p-rchased from an o-tside o-tside s-pplier DIF: 2 !F: p. p . "+" NA&: AA'SB eflective thinking ( I)A Decision anal*sis

1#. ,hich ,hich of the follow following ing costs costs are relevan relevantt to a makeor makeorb-* b-* decisi decision/ on/ a. the ori orig ginal co cost of of th the pr prod-ction e0 e0-ipmen ment This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

2

3

)anagerial Acco-nting b. c. d.

ANS: ' $B%: 2

the ann-al depreciation depreciation of the e0-ipment the the amoamo-nt nt that that wo-l wo-ld d be be rece receiv ived ed if if the the pro prodd-ct ctio ion n e0-i e0-ip pment ment were were sol sold d the the cost cost of of direc directt mate materi rial alss p-rc p-rcha hase sed d last last mon month th and and -se -sed d to man man-f -fac actt-re re the the com compo pone nent nt DIF: 2 !F: p. p . "+# NA&: AA'SB eflective thinking ( I)A Decision anal*sis

Figure 121

?ala;* Ind-stries man-fact-res 1"7888 components per *ear. &he man-fact-ring cost of the components was determined to be as follows: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead &o &otal

>1"87888 +387888 687888 1+87888 >#887888

1. efer to Fig-re Fig-re 1+1. 1+1. Ass-me Ass-me that the the fi;ed man-factman-fact-ring ring overhead overhead reflects reflects the the cost of ?ala;*4s ?ala;*4s man-fact-ring facilit*. facilit*. &his facilit* cannot be -sed for an* other p-rpose. An o-tside s-pplier has offered to sell the component to ?ala;* for >23. If ?ala;* Ind-stries p-rchases the component from the o-tside s-pplier7 s-pplier7 the effect on income wo-ld be a a. >287888 decrease b. >287888 increase c. >687888 decrease d. >687888 increase ANS: A S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead &otal cost to make

>1"87888 +387888 687888 >387888

B-*: -rchase price 1"7888 components ´ >23E

>"187888

>"187888  >387888  >287888 decrease in income DIF: 2 !F: p. "+# $B%: 2 NA&: NA&: AA'SB Anal*tic Anal*tic ( I)A Decision Decision anal*sis 1. efer to Fig-re Fig-re 1+1. 1+1. Ass-me Ass-me ?ala;* ?ala;* Ind-stries Ind-stries co-ld co-ld avoid >38788 >387888 8 of fi;ed man-factman-fact-ring ring overhead if it p-rchases the component from an o-tside s-pplier. s-pplier. An o-tside s-pplier has offered to sell the component for >23. If ?ala;* p-rchases the component from the s-pplier instead of man-fact-ring it7 the effect on income wo-ld be a a. >#87888 increase b. >187888 increase


'hapter 1+<&actical Decision )aking c. d.

"

>1887888 decrease >1387888 increase

ANS: B S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead Avoidable fi;ed overhead &otal cost to make

>1"87888 +387888 687888 387888 >"+87888

B-*: -rchase price 1"7888 components ´ >23E

>"187888

>"187888  >"+87888  >187888 increase in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

Figure 122

B? Ind-stries man-fact-res 387888 components per *ear. &he man-fact-ring cost of the components was determined to be as follows: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead &otal

> "87888 87888 287888 387888 >+887888

16. efer to Fig-re 1++. If B? Ind-stries p-rchases the component from an o-tside s-pplier for >3.+" per -nit7 the effect on income wo-ld be a a. >287888 decrease b. >287888 increase c. >187888 decrease d. >187888 increase ANS: ' S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead &otal cost to make

> "87888 87888 287888 >1#87888

B-*: -rchase price 387888 components ´ >3.+"E

>187888


#


>187888  >1#87888  >187888 decrease in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis +8. efer to Fig-re 1++. Ass-me B? Ind-stries co-ld avoid >1"7888 of fi;ed man-fact-ring overhead if it p-rchases the component from an o-tside s-pplier. If B? p-rchases the component from a s-pplier for >3.+" per -nit instead of man-fact-ring it7 the effect on income wo-ld be a a. >"7888 increase b. >1"7888 increase c. >+"7888 decrease d. >2"7888 increase ANS: A S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead Avoidable fi;ed overhead &otal cost to make

> "87888 87888 287888 1"7888 >1"7888

B-*: -rchase price 387888 components ´ >3.+"E

>187888

>187888  >1"7888  >"7888 increase in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis Figure 12!

%!D Ind-stries man-fact-res 187888 components per *ear. &he man-fact-ring cost per component was determined to be as follows: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead &otal

>+387888 2#87888 87888 +87888 >6#87888

An o-tside s-pplier has offered to sell the component for >3.

+1. efer to Fig-re 1+2. If %!D Ind-stries p-rchases the component from the o-tside s-pplier7 the effect on income wo-ld be a a. >1+87888 decrease b. >1+87888 increase c. >+87888 increase This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

'hapter 1+<&actical Decision )aking d.



>1#87888 decrease

ANS: D S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead &otal cost to make

>+387888 2#87888 87888 >#87888

B-*: -rchase price 187888 components ´ >3E

>387888

>387888  >#87888  >1#87888 decrease in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis ++. efer to Fig-re 1+2. Ass-me %!D Ind-stries co-ld avoid >387888 of fi;ed man-fact-ring overhead if it p-rchases the component from the o-tside s-pplier. If %!D p-rchases the component from the s-pplier instead of man-fact-ring it7 the effect on income wo-ld be a a. >2+87888 increase b. >1#87888 increase c. >1+87888 decrease d. >87888 decrease ANS: ' S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead Avoidable fi;ed overhead &otal cost to make

>+387888 2#87888 87888 387888 >+87888

B-*: -rchase price 187888 components ´ >3E

>387888

>387888  >+87888  >1+87888 decrease in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis Figure 12"

!D Ind-stries man-fact-res +87888 components per *ear. &he man-fact-ring cost per component was determined to be as follows: Direct materials

> 287888




)anagerial Acco-nting Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead &otal

3"7888 187888 2"7888 >1+87888

An o-tside s-pplier has offered to sell the component for >".+". +2. efer to Fig-re 1+3. If !D Ind-stries p-rchases the component from the o-tside s-pplier7 the effect on income wo-ld be a a. >1"7888 decrease b. >+87888 decrease c. >1"7888 increase d. >2"7888 increase ANS: B S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead &otal cost to make B-*: -rchase price +87888 components ´ >".+"E

>287888 3"7888 187888 >"7888

>18"7888

>18"7888  >"7888  >+87888 decrease in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

+3. efer to Fig-re 1+3. Ass-me !D Ind-stries co-ld avoid >"7888 of fi;ed man-fact-ring overhead if it p-rchases the component from the o-tside s-pplier. If !D p-rchases the component from the s-pplier instead of man-fact-ring it7 the effect on income wo-ld be a a. >387888 increase b. >187888 decrease c. >+87888 increase d. >1"7888 decrease ANS: D S$&IN? 'AC'CA&I$NS: )ake: Direct materials Direct labor @ariable overhead Avoidable fi;ed overhead &otal cost to make

>287888 3"7888 187888 "7888 >687888

B-*:


-rchase price +87888 components ´ >".+"E

'hapter 1+<&actical Decision )aking 6 >18"7888

>18"7888  >687888  >1"7888 decrease in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis +". ,hite )otor 'ompan* man-fact-res 7"88 -nits of a partic-lar part. &he -nit cost to man-fact-re this part is as follows: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead &otal

>2 3 +  >1

Di*a 'ompan* offered to sell 7"88 -nits of the part to the ,hite )otor 'ompan* for >13 per -nit. ,hite has determined that " percent of the fi;ed man-fact-ring overhead will contin-e even if the part is p-rchased from Di*a and now m-st decide whether to accept Di*a4s offer. ,hite has calc-lated the relevant costs of man-fact-ring the part internall* to be a. >1+7"88 b. >11+7"88 c. >+7"88 d. >#7"88 ANS: ' S$&IN? 'AC'CA&I$NS: >2 G >3 G >+ G > ´ .+"E  >11 ´ 7"88 -nits  >+7"88 DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis +#. A segment sho-ld be kept if a. segment reven-es e;ceed segment variable costs b. segment reven-es e;ceed segment variable costs and fi;ed costs c. segment reven-es e;ceed avoidable costs associated with the segment d. segment operating profit is positive ANS: ' $B%: 2

DIF: + !F: p. "+ NA&: AA'SB Anal*tic ( I)A Decision anal*sis

+. &he operations of 5art 'orporation are divided into the ,ill Division and the Alo* Division. ro=ections for the ne;t *ear are as follows:

Sales Cess: @ariable costs 'ontrib-tion margin

,ill Division >"#87888 16#7888 >2#37888

Alo* Division >22#7888 1"37888 >1+7888

&otal >6#7888 2"87888 >"3#7888


18

)anagerial Acco-nting Cess: Direct fi;ed costs Segment margin Cess: Allocated common cost $perating income lossE

1#7888 >16#7888 37888 >11+7888

1387888 > 3+7888 #27888 >+17888E

287888 >+27888 137888 > 617888

$perating income for 5art 'orporation7 as a whole7 if the Alo* Division were dropped wo-ld be a. >1227888 b. >11+7888 c. >617888 d. >367888 ANS: D S$&IN? 'AC'CA&I$NS: '-rrent operating income Cess: Alo*4s segment margin New operating income

>617888 3+7888 >367888

DIF: 2 !F: p. "+ $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis +. Hand* Beverage 'ompan* plans to eliminate a branch that has a contrib-tion margin of >"87888 and fi;ed costs of >"7888. $f the fi;ed costs7 >""7888 cannot be eliminated. &he effect of eliminating this branch on net income wo-ld be anE a. decrease of >+"7888 b. increase of >+"7888 c. decrease of >287888 d. increase of >287888 ANS: ' S$&IN? 'AC'CA&I$NS: 'ontrib-tion )argin Avoidable fi;ed costs >"7888  >""7888E Segment margin

>"87888 +87888 >287888

DIF: 2 !F: p. "+ $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis +6. &he operations of '-nningham 'orporation are divided into the Davis Division and the ockford Division. ro=ections for the ne;t *ear are as follows:

Sales Cess: @ariable costs 'ontrib-tion margin Cess: Direct fi;ed costs Segment margin Cess: Allocated common costs $perating income lossE

Davis Division >"887888 187888 >2+87888 1"8788 >187888 87888 >1887888

ockford Division >2#87888 +887888 >1#87888 1+"7888 > 2"7888 ""7888 >+87888E

&otal >#87888 287888 >387888 +"7888 >+8"7888 1+"7888 > 87888


'hapter 1+<&actical Decision )aking

11

$perating income for '-nningham 'orporation7 as a whole7 if the ockford Division were dropped wo-ld be a. >3"7888 b. >87888 c. >1887888 d. >1+87888 ANS: A S$&IN? 'AC'CA&I$NS: '-rrent operating income Cess: ockford4s segment margin New operating income

>87888 2"7888 >3"7888

DIF: 2 !F: p. "+ $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 28. ,hich a. b. c. d.

of the following costs is NOT relevant to a specialorder decision/ the direct labor costs to man-fact-re the specialorder -nits the variable man-fact-ring overhead inc-rred to man-fact-re the specialorder -nits the portion of the cost of leasing the factor* that is allocated to the special order All of the above costs are relevant costs.

ANS: ' $B%: 2

DIF: + !F: p. "28 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

21. An important 0-alitative factor to consider regarding a special order is the a. variable costs associated with the special order b. avoidable fi;ed costs associated with the special order c. effect the sale of specialorder -nits will have on the sale of reg-larl* priced -nits d. incremental reven-e from the special order ANS: ' $B%: 2

DIF: 2 !F: p. "28 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

2+. If there is e;cess capacit*7 the minim-m acceptable price for a special order m-st cover a. onl* variable costs associated with the special order b. variable and fi;ed man-fact-ring costs associated with the special order c. variable and incremental fi;ed costs associated with the special order d. variable costs and incremental fi;ed costs associated with the special order7 pl-s the contrib-tion margin -s-all* earned on reg-lar -nits ANS: ' $B%: 2


Figure 12#

&he following information relates to a prod-ct prod-ced b* @ictoria 'ompan*: Direct materials

>18


1+

)anagerial Acco-nting Direct labor @ariable overhead Fi;ed overhead nit cost

 #  >21

Fi;ed selling costs are >178887888 per *ear. @ariable selling costs of >3 per -nit sold are added to cover the transportation cost. Altho-gh prod-ction capacit* is #887888 -nits per *ear7 @ictoria e;pects to prod-ce onl* 3887888 -nits ne;t *ear. &he prod-ct normall* sells for >38 each. A c-stomer has offered to b-* #87888 -nits for >28 each. &he c-stomer will pa* the transportation charge on the -nits p-rchased. 22. efer to Fig-re 1+". @ictoria4s incremental cost per -nit associated with the special order is a. >+2 b. >+ c. >21 d. >2" ANS: A S$&IN? 'AC'CA&I$NS: Direct materials Direct labor @ariable overhead 'ost per -nit

>18  # >+2

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 23. efer to Fig-re 1+". @ictoria4s total incremental costs associated with the special order are a. >+71887888 b. >17#87888 c. >17#+87888 d. >17287888 ANS: D S$&IN? 'AC'CA&I$NS: #87888 -nits ´ >18 G > G >#E  >17287888 DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 2". efer to Fig-re 1+". If @ictoria accepts the special order7 the effect on income wo-ld be a a. >#87888 increase b. >187888 increase c. >3+87888 increase d. >#887888 decrease ANS: ' S$&IN? 'AC'CA&I$NS: Incremental reven-e #87888 -nits ´ >28E Cess: Incremental costs

>17887888


#87888 -nits ´ >18 G > G >#EJ Incremental profit

'hapter 1+<&actical Decision )aking 12 17287888 > 3+87888

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

Figure 12$

)isso-la Ind-stries man-fact-res a prod-ct with the following costs per -nit at the e;pected prod-ction of 287888 -nits: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead

>" 1"  #

&he compan* has the capacit* to prod-ce #87888 -nits. &he prod-ct reg-larl* sells for >3". A wholesaler has offered to pa* >38 each for +7888 -nits. 2#. efer to Fig-re 1+#. If the special order is accepted7 the effect on )isso-la4s operating income wo-ld be a a. >+37888 increase b. >237888 increase c. >187888 decrease d. >1+7888 decrease ANS: A S$&IN? 'AC'CA&I$NS: Incremental reven-e +7888 -nits ´ >38E Incremental costs: Direct materials +7888 -nits ´ >"E Direct labor +7888 -nits ´ >1"E @ariable overhead +7888 -nits ´ >E Incremental profit

>87888 >187888 287888 1#7888

"#7888 >+37888

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 2. efer to Fig-re 1+#. If )isso-la is at capacit* and the special order is accepted7 the effect on operating income wo-ld be a a. >+37888 increase b. >237888 increase c. >187888 decrease d. >1+7888 decrease


13


ANS: ' S$&IN? 'AC'CA&I$NS: +7888 -nits ´ >3"  >38E  >187888 decrease in income DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis Figure 12%

&he following information relates to a prod-ct prod-ced b* Davison 'ompan*: Direct materials Direct labor @ariable overhead Fi;ed overhead nit cost

>" + # 3 >1

Fi;ed selling costs are >"887888 per *ear. @ariable selling costs of >+ per -nit sold are added to cover the transportation cost. Altho-gh prod-ction capacit* is "887888 -nits per *ear7 Davison e;pects to prod-ce onl* 3887888 -nits ne;t *ear. &he prod-ct normall* sells for >"8 each. A c-stomer has offered to b-* "87888 -nits for >+3 each. &he c-stomer will pa* the transportation charge on the -nits p-rchased. 2. efer to Fig-re 1+. Davison4s incremental cost per -nit associated with the special order is a. >1 b. >1# c. >1" d. >12 ANS: D S$&IN? 'AC'CA&I$NS: Direct materials Direct labor @ariable overhead 'ost per -nit

>" + # >12

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 26. efer to Fig-re 1+. Davison4s total incremental costs associated with the special order are a. >+"7888 b. >"87888 c. >#87888 d. >#"87888



1"

ANS: D S$&IN? 'AC'CA&I$NS: "87888 -nits ´ >" G >+ G >#E  >#"87888 DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

38. efer to Fig-re 1+. If Davison prod-ces the special order7 the effect on income wo-ld be a a. >#"87888 increase b. >#"87888 decrease c. >""87888 decrease d. >""87888 increase ANS: D S$&IN? 'AC'CA&I$NS: Incremental reven-e "87888 -nits ´ >+3E Cess: Incremental costs "87888 -nits ´ >" G >+ G >#EJ Incremental profit

>17+887888 #"87888 > ""87888

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 31. S&A' Ind-stries man-fact-res a prod-ct with the following costs per -nit at the e;pected prod-ction of 387888 -nits: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead

>18 1"  12

&he compan* has the capacit* to prod-ce "87888 -nits. &he prod-ct reg-larl* sells for >#8. A wholesaler has offered to pa* >"8 each for 17888 -nits. If the special order is accepted7 the effect on operating income for S&A' Ind-stries wo-ld be a a. >17888 increase b. >137888 increase c. >37888 increase d. >187888 decrease ANS: A S$&IN? 'AC'CA&I$NS: Incremental reven-e 17888 -nits ´ >"8E Cess: Incremental costs 17888 -nits ´ >18 G >1" G >EJ Incremental profit

>"87888 227888 >17888


1#


DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 3+. Bridge Ind-stries man-fact-res a prod-ct with the following costs per -nit at the e;pected prod-ction of 7888 -nits: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead

>1" ++ 1+ 16

&he compan* has the capacit* to prod-ce 87888 -nits. &he prod-ct reg-larl* sells for >68. A wholesaler has offered to pa* >" each for +7888 -nits. If Bridge4s special order is accepted7 the effect on operating income wo-ld be a a. >+87888 decrease b. >"+7888 increase c. >137888 increase d. none of the above ANS: B S$&IN? 'AC'CA&I$NS: Incremental reven-e +7888 -nits ´ >"E Cess: Incremental costs +7888 -nits ´ >1" G >++ G >1+EJ Incremental profit

>1"87888 67888 > "+7888


32. Salish Ind-stries man-fact-res a prod-ct with the following costs per -nit at the e;pected prod-ction of #87888 -nits: Direct materials Direct labor @ariable man-fact-ring overhead Fi;ed man-fact-ring overhead

> 1" 18 1+

&he compan* has the capacit* to prod-ce 87888 -nits. &he prod-ct reg-larl* sells for >#8. A wholesaler has offered to pa* >"" each for "7888 -nits. If the special order is accepted7 the effect on operating income wo-ld be a a. >3+7888 decrease b. >#7888 increase c. >1187888 increase d. >1+7888 decrease



1

ANS: ' S$&IN? 'AC'CA&I$NS: Incremental reven-e "7888 -nits ´ >""E Incremental costs: Direct materials "7888 -nits ´ >E Direct labor "7888 -nits ´ >1"E @ariable overhead "7888 -nits ´ >18E Incremental profit

>+"7888 >387888 "7888 "87888

1#"7888 >1187888

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 33. %oint prod-cts are a. indisting-ishable before the splitoff point b. disting-ishable before the splitoff point c. indisting-ishable after the splitoff point d. disting-ishable thro-gho-t the entire man-fact-ring process ANS: A $B%: 2


3". &he 9999 is where prod-cts become disting-ishable after passing thro-gh a common process. a. work in process b. relevant point c. breakeven point d. splitoff point ANS: D $B%: 2


3#. ,hen are =oint prod-cts relevant to the decision to sell at the splitoff point or process f-rther/ a. never b. at the splitoff point c. after f-rther processing d. impossible to tell with information provided ANS: A $B%: 2

DIF: + !F: p. "2+ NA&: AA'SB eflective thinking ( I)A Decision anal*sis

3. ,hich of the following costs is NOT relevant to a decision to sell a prod-ct at splitoff or to process the prod-ct f-rther and then sell the prod-ct/ a. the =oint costs allocated to the prod-ct b. the selling price of the prod-ct at splitoff c. the additional processing costs after splitoff d. the selling price of the prod-ct after f-rther processing ANS: A $B%: 2



1


3. A =oint prod-ct sho-ld be processed be*ond splitoff if additional reven-e from f-rther processing e;ceeds a. =oint costs b. allocated =oint costs c. allocated =oint costs and additional costs of f-rther processing d. additional costs of f-rther processing ANS: D $B%: 2


36. %igger 'orporation has 27888 o-tofst*le winter hats that cost the compan* >#7888 to man-fact-re. If the hats are rest*led for >+7"887 the* can be sold for >"7888. &he other alternative is to sell them for scrap for >17888. ,hich alternative is more desirable/ a. rest*le b. sell for scrap c. do nothing d. none of the above ANS: A S$&IN? 'AC'CA&I$NS: est*le: >"7888  >+7"88  >+7"88 Scrap: >17888 DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

"8. ,hen there is one scarce reso-rce7 the prod-ct that sho-ld be prod-ced first is the prod-ct with the highest a. contrib-tion margin per -nit of the scarce reso-rce b. sales price per -nit of the scarce reso-rce c. demand d. contrib-tion margin per -nit ANS: A $B%: 3


Figure 12&

$ttawa 'orporation prod-ces two prod-cts from a =oint process. Information abo-t the two =oint prod-cts is as follows:

Anticipated prod-ction in po-ndsE Selling price per po-nd at splitoff Additional processing costs per po-nd after splitoff all variableE Selling price per po-nd after f-rther processing

rod-ct K +7888 >28

rod-ct L 37888 >1#

>1"

>28

>38

>"8



16

&he cost of the =oint process is >"7888. "1. efer to Fig-re 1+. ,hich of $ttawa4s =oint prod-cts sho-ld be sold at splitoff/ a. prod-ct K onl* b. prod-ct L onl* c. both prod-ct K and prod-ct L d. neither prod-ct K nor prod-ct L ANS: A S$&IN? 'AC'CA&I$NS:

rod-ct K rod-ct L

Splitoff >28 >1#

rocess F-rther >38  >1"  >+" >"8  >28  >+8

DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis "+. efer to Fig-re 1+. ,hich of $ttawa4s =oint prod-cts sho-ld be processed f-rther/ a. prod-ct K onl* b. prod-ct L onl* c. both prod-ct K and prod-ct L d. neither prod-ct K nor prod-ct L ANS: B S$&IN? 'AC'CA&I$NS:


Splitoff >28 >1#

rocess F-rther >38  >1"  >+" >"8  >28  >+8

DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis "2. efer to Fig-re 1+. $ttawa c-rrentl* sells both prod-cts at the splitoff point. If $ttawa makes decisions that ma;imiMe profit7 $ttawa4s profit will increase b* a. >1#7888 b. >37888 c. >"87888 d. >187888 ANS: A S$&IN? 'AC'CA&I$NS:


Splitoff >28 >1#

rocess F-rther >38  >1"  >+" >"8  >28  >+8


+8


37888 po-nds ´ >+8  >1#E  >1#7888 DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

Figure 12'

Information abo-t three =oint prod-cts is as follows: Pro(uct )

Pro(uct *

Pro(uct C

187888

+7888

37888

>18

>28

>1#

>#

>1+

>+3

>+8

>38

>"8

Anticipated prod-ction in po-ndsE Selling price per po-nd at splitoff Additional processing costs per po-nd after splitoff all variableE Selling price per po-nd after f-rther processing &he cost of the =oint process is >1+87888.

"3. efer to Fig-re 1+6. ,hich of the =oint prod-cts sho-ld be sold at splitoff/ a. prod-ct A onl* b. prod-ct B onl* c. prod-ct ' onl* d. both prod-ct A and prod-ct B ANS: B S$&IN? 'AC'CA&I$NS:

rod-ct A rod-ct B rod-ct '

Splitoff >18 >28 >1#

rocess F-rther >+8  >#  >13 >38  >1+  >+ >"8  >+3  >+#

DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis "". efer to Fig-re 1+6. If the firm is c-rrentl* processing all three prod-cts be*ond splitoff7 the firm4s income wo-ld be a. >2887888 b. >++37888 c. >187888 d. >1837888



+1

ANS: ' S$&IN? 'AC'CA&I$NS: rod-ct A

rod-ct B

rod-ct '

187888 po-nds ´ >+8 187888 po-nds ´ >#E

>+887888 #87888

>1387888

+7888 po-nds ´ >38E +7888 po-nds ´ >1+E

> 87888 +37888

"#7888

37888 po-nds ´ >"8E 37888 po-nds ´ >+3E

>+887888 6#7888

Cess: 'ost of =oint process Income

1837888 >2887888 1+87888 >187888


Figure 121+

Information abo-t three =oint prod-cts is as follows:

Anticipated prod-ction in po-ndsE Selling price per po-nd at splitoff Additional processing costs per po-nd after splitoff all variableE Selling price per po-nd after f-rther processing

Pro(uct )

Pro(uct *

Pro(uct C

+37888

1#7888

137888

>1#

>+#

>3

>

>+8

>+8

>+8

>38

>8

&he cost of the =oint process is >+87888. "#. efer to Fig-re 1+18. ,hich of the =oint prod-cts sho-ld be sold at splitoff/ a. prod-ct A onl* b. prod-ct B onl* c. prod-ct ' onl* d. both prod-ct A and prod-ct B ANS: D S$&IN? 'AC'CA&I$NS:

rod-ct A rod-ct B rod-ct '

Splitoff >1# >+# >3

rocess F-rther >+8  >  >1+ >38  >+8  >+8 >8  >+8  >"8


++


DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis ". efer to Fig-re 1+18. If the firm is c-rrentl* processing all three prod-cts be*ond splitoff7 the firm4s income wo-ld be a. >173+7888 b. >17287888 c. >1716+7888 d. >178+7888 ANS: D S$&IN? 'AC'CA&I$NS: rod-ct A +37888 po-nds ´ >+8  >EJ rod-ct B 1#7888 po-nds ´ >38  >+8EJ rod-ct ' 137888 po-nds ´ >8  >+8EJ Cess: 'ost of =oint process Income

> +7888 2+87888 887888 >17287888 +87888 >178+7888

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis ". efer to Fig-re 1+18. Ass-me the firm makes decisions that ma;imiMe profit. &he firm4s income wo-ld be a. >17++87888 b. >17287888 c. >173+7888 d. >178+7888 ANS: A S$&IN? 'AC'CA&I$NS: rod-ct A rod-ct B rod-ct '

sell at splitoffE +37888 po-nds ´ >1# sell at splitoffE 1#7888 po-nds ´ >+# process f-rtherE 137888 po-nds ´ >8  >+8E

Cess: 'ost of =oint process Income

> 237888 31#7888 887888 >17"887888 +87888 >17++87888




+2

"6. )oore )an-fact-ring 'ompan* makes two prod-cts from a common inp-t. %oint processing costs -p to the splitoff point total >+27388. &he compan* allocates the =oint costs to the prod-cts on the basis of their total sales val-es at splitoff. &he total sales val-e at splitoff for both prod-cts is the same. !ach prod-ct ma* be sold at the splitoff point or processed f-rther. Data concerning one of these prod-cts are as follows: Sales val-e at splitoff 'ost of f-rther processing Sales val-e after f-rther processing

>1"7888 187888 287888

,hat is the minim-m amo-nt the compan* wo-ld accept for this prod-ct if it is to be sold at the splitoff point/ a. >187888 b. >+1788 c. >+87888 d. >+#788 ANS: ' S$&IN? 'AC'CA&I$NS: >287888  >187888  >+87888 DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis #8. &he Dot 'ompan* man-fact-res two prod-cts: K and L. &he contrib-tion margin per -nit is determined as follows:

Sales @ariable costs 'ontrib-tion margin

K >128 8 > #8

L >8 2 >3+

&otal demand for rod-ct K is 1#7888 -nits and for rod-ct L is 7888 -nits. )achine ho-rs is a scarce reso-rce. D-ring the *ear7 3+7888 machine ho-rs are available. rod-ct K re0-ires # machine ho-rs per -nit7 while rod-ct L re0-ires 2 machine ho-rs per -nit. 5ow man* -nits of rod-cts K and L sho-ld Dot 'ompan* prod-ce/ rod-ct K rod-ct L a. 1#7888 8 b. 7888 37888 c. 7888 8 d. 27888 7888


+3


ANS: D S$&IN? 'AC'CA&I$NS: rod-ct K: >#8<# machine ho-rs  >18 contrib-tion margin per machine ho-r rod-ct L: >3+<2 machine ho-rs  >13 contrib-tion margin per machine ho-r +37888 machine ho-rs 17888 machine ho-rs 3+7888 machine ho-rs

rod-ct L: 7888 -nits ´ 2 machine ho-rs  rod-ct K: 27888 -nits ´ # machine ho-rs  &otal DIF: 2 !F: p. "22"23 $B%: 3 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

#1. 'addo 'orporation prod-ces two prod-cts -sing the same man-fact-ring e0-ipment. Information abo-t the two prod-cts is as follows: Alpha >1" >" 8." 287888 1"7888

Sales @ariable costs )achine ho-rs re0-ired Demand -nitsE Demand machine ho-rsE

Beta >2" >18 +.8 187888 +87888

If 'addo can prod-ce onl* one of the prod-cts in the ne;t period7 which prod-ct sho-ld be prod-ced/ a. Alpha sho-ld be prod-ced beca-se it re0-ires less machine ho-rs. b. Beta sho-ld be prod-ced beca-se it generates more reven-e. c. Beta sho-ld be prod-ced beca-se it generates more contrib-tion margin per -nit. d. none of the above ANS: D S$&IN? 'AC'CA&I$NS: Alpha sho-ld be prod-ced beca-se it prod-ces more contrib-tion margin per -nit of scarce reso-rce. Alpha: >1"  >"E<8." ho-r  >+8 per ho-r Beta: >2"  >18E<+.8 ho-rs  >1+."8 per ho-r DIF: 2 !F: p. "22"23 $B%: 3 NA&: AA'SB Anal*tic ( I)A Decision anal*sis #+. ,%! 'ompan* has onl* 37888 machine ho-rs available each month. &he following information on the compan*4s three prod-cts is available: Pro(uct ))

Pro(uct **

Pro(uct CC


'ontrib-tion margin per -nit )achine ho-rs per -nit

'hapter 1+<&actical Decision )aking +" >18.88 >12.88 >".88 + 1." 8."

If demand e;ceeds the available capacit*7 in what se0-ence sho-ld orders be filled to ma;imiMe the compan*4s profits/ a. prod-ct AA first7 prod-ct BB second7 and prod-ct '' third b. prod-ct BB first7 prod-ct AA second7 and prod-ct '' third c. prod-ct '' first7 prod-ct BB second7 and prod-ct AA third d. prod-ct '' first7 prod-ct AA second7 and prod-ct BB third ANS: ' S$&IN? 'AC'CA&I$NS: 'ontrib-tion margin per machine ho-r: rod-ct AA: >18<+ ho-rs  >" per machine ho-r rod-ct BB: >12<1." ho-rs  >.# per machine ho-r rod-ct '': >"<8." ho-r  >18 per machine ho-r DIF: 2 !F: p. "22"23 $B%: 3 NA&: AA'SB Anal*tic ( I)A Decision anal*sis #2. In a costbased pricing s*stem7 the mark-p sho-ld cover a. selling and administrative e;penses7 desired profit7 and man-fact-ring cost b. selling and administrative e;penses and desired profit onl* c. selling and administrative e;penses and man-fact-ring cost onl* d. desired profit and man-fact-ring cost onl* ANS: B $B%: "


#3. ,hich of the following bases are acceptable for the calc-lation of a mark-p/ a. cost of goods sold b. p-rchased materials c. total cost d. all of the above ANS: D $B%: "


#". NFamo-s Department Stores marks -p its merchandise b* 1+" percent of original cost. For an item recentl* p-rchased for >387 the total mark-p is a. >"8 b. >18 c. >2+ d. >1+8


+#


ANS: B S$&IN? 'AC'CA&I$NS: >38 ´ 1+"  >"8 Selling price7 >"8  >38  >18 DIF: 2 !F: p. "2" $B%: " NA&: AA'SB Anal*tic ( I)A Decision anal*sis ##. %ason Department Stores marks -p its merchandise b* 138 percent of original cost. For an item recentl* p-rchased for >"87 the selling price is a. >2# b. >"8 c. >8 d. >188 ANS: ' S$&IN? 'AC'CA&I$NS: >"8 ´ 138  >8 DIF: 2 !F: p. "2" $B%: " NA&: AA'SB Anal*tic ( I)A Decision anal*sis #. A target cost is comp-ted as a. the cost to man-fact-re pl-s a desired mark-p b. the cost to man-fact-re pl-s the designated selling e;penses c. the market willingness to pa* less the cost to man-fact-re d. the market willingness to pa* less the desired profit ANS: D $B%: "

DIF: 1 !F: p. "2# NA&: AA'SB Anal*tic ( I)A Decision anal*sis

#. Setting prices below cost for the p-rpose of in=-ring competitors and eliminating competition is a. predator* pricing b. target pricing c. price discrimination d. price go-ging ANS: A $B%: "

DIF: 1 !F: p. "2 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

#6. D-mping is the term -sed to describe which of the following acts in international trade/ a. predator* pricing b. target pricing c. price discrimination d. price go-ging ANS: A $B%: "

DIF: 1 !F: p. "2 NA&: AA'SB eflective thinking ( I)A Decision anal*sis


'hapter 1+<&actical Decision )aking 8. 'harging different prices to different c-stomers for essentiall* the same prod-ct is a. predator* pricing b. target pricing c. price discrimination d. price go-ging ANS: ' $B%: "

+


1. &he obinsonatman Act of 162# has o-tlawed which of the following/ a. predator* pricing b. target pricing c. price discrimination d. price go-ging ANS: ' $B%: "

DIF: + !F: p. "2 NA&: AA'SB eflective thinking ( I)A Decision anal*sis

+. &he obinsonatman Act o-tlaws price discrimination a. on all e;changes of goods and services b. b* both man-fact-ring firms and distrib-tors c. e;cept where =-stified b* identifiable cost savings d. all of the above ANS: ' $B%: "


2. Setting prices too high when in a position of market power is a. predator* pricing b. target pricing c. price discrimination d. price go-ging ANS: D $B%: "


3. &he f-nction to be optimiMed in a linear programming model -sed to find the optimal sol-tion to a problem of m-ltiple constrained reso-rces is called a. the constraint set b. the ob=ective f-nction c. independent variable d. dependent variable ANS: B $B%: #

DIF: 1 !F: p. "38 NA&: AA'SB Anal*tic ( I)A O-antitative methods

". &he sol-tion that satisfies the constraints in the linear programming model is called a. a feasible sol-tion b. an ob=ective sol-tion c. an ob=ective f-nction d. the dependent variable


+


ANS: A $B%: #


#. &he linear programing model can be solved b* graphing when there a. is an optimal sol-tion b. is a feasible set of sol-tions c. are known s-ppl* and demand c-rves d. are onl* two prod-cts ANS: D $B%: #


. ,hen there are more than two prod-cts7 the linear programming problem can be solved -sing the a. s-ppl* and demand f-nction b. feasible sol-tion method c. simple; method d. graphic method ANS: ' $B%: #


. @aca 'ompan* man-fact-res two different prod-cts7 K and L. &he compan* has 188 po-nds of materials and 288 direct labor ho-rs available for prod-ction. &he time re0-irements and contrib-tion margins per -nit are as follows: rod-ct K 'ontrib-tion margin per -nit )aterials per -nit lbs.E Direct labor ho-rs per -nit

rod-ct L

$4

$5

1

2

4

2

,hat is the ob=ective f-nction for ma;imiMing profits/ a. )inimiMe >3K G >"L b. )a;imiMe >3K G >"L c. )a;imiMe >1K G >+L d. )a;imiMe >3K G >+L ANS: B $B%: #

DIF: + !F: p. "38 NA&: AA'SB Anal*tic ( I)A O-antitative methods

6. A linear programming problem has the following ob=ective f-nction: +8K G 38L G #8H. If the optimal sol-tion provided b* the model is to prod-ce and sell 1887 +88 and 288 -nits of K7 L7 and H7 respectivel*7 what is the e;pected ret-rn/ a. >2#7888 b. >+7888 c. >1+8 d. >+37888



+6

ANS: B S$&IN? 'AC'CA&I$NS: 188 ´ >+8E G +88 ´ >38E G 288 ´ >#8E  >+7888 DIF: + !F: p. "38 $B%: # NA&: AA'SB Anal*tic ( I)A O-antitative methods 8. %ones 'ompan* prod-ces A and B with contrib-tion margins per -nit of >38 and >287 respectivel*. $nl* "88 labor ho-rs and 288 machine ho-rs are available for prod-ction. &ime re0-irements to prod-ce one -nit of A and B are as follows:

Cabor ho-rs per -nit )achine ho-rs per -nit

rod-ct A " 1

rod-ct B + 3

,hat is the constraint on labor ho-rs for 5eft 'ompan*/ a. "A G 1B £ "88 b. "A G +B £ "88 c. 1A G 3B £ 288 d. 38A G 28B £ "88 ANS: B $B%: #


1. ortofino )an-fact-ring 'ompan* prod-ces K and L with contrib-tion margins per -nit of >18 and >687 respectivel*. $nl* +88 labor ho-rs and 388 machine ho-rs are available for prod-ction. &ime re0-irements to prod-ce one -nit of K and L are as follows:


rod-ct A 1 "

rod-ct B + 1

,hat is the constraint on machine ho-rs for &iffan* )an-fact-ring 'ompan*/ a. 18K G 68L £ +88 b. 1K G +L £ 388 c. 1K G +L £ +88 d. "K G 1L £ 388 ANS: D $B%: #


+. ortofino )an-fact-ring 'ompan* prod-ces K and L with contrib-tion margins per -nit of >18 and >687 respectivel*. $nl* +88 labor ho-rs and 388 machine ho-rs are available for prod-ction. &ime re0-irements to prod-ce one -nit of K and L are as follows:


rod-ct K 1 "

rod-ct L + 1


28

)anagerial Acco-nting ,hat is the ob=ective f-nction to ma;imiMe profits for &iffan* )an-fact-ring 'ompan*/ a. )inimiMe 18K G 68L b. )a;imiMe 1K G +L c. )a;imiMe 18K G 68L d. )inimiMe 1K G +L

ANS: ' $B%: #


2. &he following information is available for %acobs 5a-ler 'ompan*7 which sells two prod-cts: &railer A + ho-rs 1# s0. ft. >"8.88 >2".88 >18.88

rocessing time @in*l cover -sed Selling price @ariable cost Fi;ed cost

&railer B 3 ho-rs 1+ s0. ft. >8.88 >"8.88 >+8.88

&here are 188 ho-rs available in the plant and " s0-are feet of vin*l available per operating period. ,hat is the ob=ective f-nction for ma;imiMing profits/ a. )a;imiMe >1"A G >28B b. )a;imiMe >"8A G >8B c. )a;imiMe >2"A G >"8B d. )inimiMe >1"A G >28B ANS: A $B%: #


&he following information is available for %acobs 5a-ler 'ompan*7 which sells two prod-cts: &railer A + ho-rs 1# s0. ft. >"8.88 >2".88 >18.88

rocessing time @in*l cover -sed Selling price @ariable cost Fi;ed cost

&railer B 3 ho-rs 1+ s0. ft. >8.88 >"8.88 >+8.88

&here are 188 ho-rs available in the plant and " s0-are feet of vin*l available per operating period. 3. &he constraint e0-ation representing the materials available for the prod-ction processes is a. +A G 3B ³ 188. b. 1#A G 1+B  ". c. +A G 3B  +88. d. 1#A G 1+B £ ". ANS: D $B%: #



'hapter 1+<&actical Decision )aking ". ,hich a. b. c. d.

21

of the following statements is IN'$!'&/ &he materials constraint favors &railer B over &railer A. &he time constraint favors &railer A over &railer B. &he material constraint favors &railer A over &railer B. &he ob=ective f-nction favors &railer B over &railer A.

ANS: ' $B%: #


&he following information is available for Allen F-rnit-re 'ompan*7 which sells two prod-cts: &able K 3 ho-rs 28 s0. ft. >+88.88 >1"8.88 >28.88

rocessing time )etal -sed Selling price @ariable cost Fi;ed cost

&able L # ho-rs 1 s0. ft. >188.88 >#8.88 >28.88

&here are +88 ho-rs available in the plant and +88 s0-are feet of metal available per operating period. #. &he constraint e0-ation representing processing time available is a. 3K G #L ³ +88. b. 3K G #L £ +88. c. 28K G 1L £ +88. d. 3K G #L £ 388. ANS: B $B%: #


. ,hat is the ob=ective f-nction for ma;imiMing sales reven-e/ a. )a;imiMe +88K G 188L b. )a;imiMe 18K G 68L c. )a;imiMe "8K G 38L d. )inimiMe +88K G 188L ANS: A $B%: #


. In the graphic method of solving a linear programming problem7 which of the following is depicted on the graph/ a. coefficient of correlation b. constraint c. leasts0-ares line of best fit d. breakeven point ANS: B $B%: #


6. sing the graphic approach to linear programming7 the sol-tion is -s-all* a. a corner point where two or more constraints intersect. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

2+

)anagerial Acco-nting b. c. d.

ANS: A $B%: #

where the lines intersect farthest from Mero. the point farthest from the La;is. the point farthest from the Ka;is. DIF: + !F: p. "31 NA&: AA'SB Anal*tic ( I)A O-antitative methods

P,O*LEM

1.

Solomon 'ompan* man-fact-res +87888 components per *ear. &he man-fact-ring cost per -nit of the components is as follows: Direct materials Direct labor @ariable overhead Fi;ed overhead &otal -nit cost

>18 13 #  >2

Ass-me that the fi;ed overhead reflects the cost of Solomon4s man-fact-ring facilit*. &his facilit* cannot be -sed for an* other p-rpose. An o-tside s-pplier has offered to sell the component to Solomon for >2+. e0-ired: a.

b.

ANS: a.

,hat is the effect on income if Solomon p-rchases the component from the o-tside s-pplier/ Ass-me that Solomon can avoid >"87888 of the total fi;ed overhead costs if it p-rchases the components. Now what is the effect on income if Solomon p-rchases the component from the o-tside s-pplier/

>387888 decrease )ake: Direct materials Direct labor @ariable overhead &otal cost to make

+87888 components ´ >18E +87888 components ´ >13E +87888 components ´ >#E

B-*: -rchase price +87888 components ´ >2+E

>+887888 +87888 1+87888 >#887888

>#387888

>#387888  >#887888  >387888 decrease in income

b.

>187888 increase )ake: Direct materials

+87888 components ´ >18E

>+887888


Direct labor @ariable overhead Avoidable fi;ed overhead &otal cost to make

'hapter 1+<&actical Decision )aking 22 +87888 +87888 components ´ >13E 1+87888 +87888 components ´ >#E "87888 >#"87888

B-*: -rchase price +87888 components ´ >2+E

>#387888

>#387888  >#"87888  >187888 increase in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis +.

)ills Inc. man-fact-res "87888 components per *ear. &he man-fact-ring cost per -nit of the components is as follows: Direct materials Direct labor @ariable overhead Fi;ed overhead &otal -nit cost

>1+ 12 " 18 >38

An o-tside s-pplier has offered to sell the component to )ills Inc. for >2". e0-ired: a.

b.

ANS: a.

,hat is the effect on income if )ills Inc. p-rchases the component from the o-tside s-pplier/ Ass-me that )ills Inc. can avoid >887888 of the total fi;ed overhead costs if it p-rchases the components. Now what is the effect on income if )ills Inc. p-rchases the component from the o-tside s-pplier/

>+"87888 decrease )ake: Direct materials Direct labor @ariable overhead &otal cost to make B-*: -rchase price

"87888 components ´ >1+E "87888 components ´ >12E "87888 components ´ >"E

> #887888 #"87888 +"87888 >17"887888

"87888 components ´ >2"E

>17"87888

>17"87888  >17"887888  >+"87888 decrease in income b.

>3"87888 increase )ake:


23

)anagerial Acco-nting Direct materials Direct labor @ariable overhead Avoidable fi;ed overhead &otal cost to make

"87888 components ´ >1+E "87888 components ´ >12E "87888 components ´ >"E

B-*: -rchase price "87888 components ´ >2"E

> #887888 #"87888 +"87888 887888 >+7+887888

>17"87888

>17"87888  >+7+887888  >3"87888 increase in income DIF: 2 !F: p. "+# $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis

2.

@ance 'ompan* man-fact-res a prod-ct that has the following -nit costs: direct materials7 >1"P direct labor7 >1+P variable overhead7 >P and fi;ed overhead7 >1+. Fi;ed selling costs are >17"887888 per *ear. @ariable selling costs of >3 per -nit cover the transportation cost. Altho-gh prod-ction capacit* is 887888 -nits per *ear7 the compan* e;pects to prod-ce onl* #"87888 -nits ne;t *ear. &he prod-ct normall* sells for >8 each. A c-stomer has offered to b-* "87888 -nits for >3" each. &he c-stomer will pa* the transportation charge on the -nits p-rchased.

e0-ired: a. b. ANS: a. b.

,hat is the incremental cost to @ance 'ompan* for the special order/ ,hat is the effect on @ance4s income if the special order is accepted/

>17"87888

"87888 -nits ´ >1" G >1+ G >E

>"887888 increase

Incremental reven-e Cess: Incremental costs Incremental profit

"87888 -nits ´ >3"E "87888 -nits ´ >2"E

>+7+"87888 17"87888 > "887888

DIF: 2 !F: p. "21 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis 3.

)a=estic 'ompan* man-fact-res a prod-ct that has the following -nit costs: direct materials7 >"P direct labor7 >P variable overhead7 >2P and fi;ed overhead7 >". Fi;ed selling costs are >+887888 per *ear. @ariable selling costs of >1 per -nit cover the transportation cost. Altho-gh prod-ction capacit* is 87888 -nits per *ear7 the compan* e;pects to prod-ce onl* #"7888 -nits ne;t *ear. &he prod-ct normall* sells for >28 each. A c-stomer has offered to b-* 187888 -nits for >1 each. &he c-stomer will pa* the transportation charge on the -nits p-rchased.

e0-ired: a.

,hat is the incremental cost per -nit to )a=estic 'ompan* for the special order/


'hapter 1+<&actical Decision )aking b. ANS: a. b.

2"

,hat is the effect on )a=estic4s income if the special order is accepted/

>1"

>" G > G >2E

>287888 increase

Incremental reven-e Cess: Incremental costs Incremental profit

>187888 1"87888 > 287888

187888 -nits ´ >1E 187888 -nits ´ >1"E


".

)a;well 'ompan* man-fact-res two prod-cts from a =oint process. Information abo-t the two =oint prod-cts is as follows:

Anticipated prod-ction in gallonsE Selling price per gallon at splitoff Additional processing costs per gallon after splitoff all variableE Selling price per gallon after f-rther processing

rod-ct AB' 387888 >"8

rod-ct KLH "87888 >#8

>+"

>6"

>188

>138

&he cost of the =oint process is >17"887888. e0-ired: a.

,hich of )a;well4s =oint prod-cts sho-ld be processed f-rther/

b.

Ass-me that )a;well c-rrentl* sells both prod-cts at the splitoff point. ,hat is )a;well4s income/

c.

Ass-me that )a;well makes decisions abo-t its =oint prod-cts that ma;imiMe profit. ,hat is )a;well4s income/

ANS: a.

rod-ct AB' sho-ld be processed f-rtherP rod-ct KLH sho-ld be sold at splitoff.

rod-ct AB' rod-ct KLH b.

Splitoff >"8 >#8

rocess F-rther >188  >+"  >" >138  >6"  >3"

>27"887888 rod-ct AB' 387888 gallons ´ >"8E rod-ct KLH "87888 gallons ´ >#8E

>+78887888 278887888


2#

)anagerial Acco-nting Cess: %oint process costs Income c.

>"78887888 17"887888 >27"887888

>37"887888 rod-ct AB' 387888 gallons ´ >188E 387888 gallons ´ >+"E rod-ct KLH "87888 gallons ´ >#8E

>378887888 178887888

>278887888 278887888 >#78887888 17"887888 >37"887888

Cess: %oint process costs Income

DIF: 2 !F: p. "22 $B%: 2 NA&: AA'SB Anal*tic ( I)A Decision anal*sis #. %aMMm*ne 'ompan* man-fact-res two prod-cts from a =oint process. Information abo-t the two =oint prod-cts is as follows: rod-ct K 187888 >#8

Anticipated prod-ction in -nitsE Selling price per -nit at splitoff Additional processing costs per -nit after splitoff all variableE Selling price per -nit after f-rther processing

rod-ct L 1"7888 >188

>188

>""

>1"8

>1"

&he cost of the =oint process is >17"87888. e0-ired: a.

,hich of %aMMm*ne4s =oint prod-cts sho-ld be processed f-rther/

b.

Ass-me that %aMMm*ne c-rrentl* sells both prod-cts at the splitoff point. ,hat is %aMMm*ne4s income/

c.

Ass-me that %aMMm*ne makes decisions abo-t its =oint prod-cts that ma;imiMe profit. ,hat is %aMMm*ne4s income/

ANS: a.

rod-ct L sho-ld be processed f-rtherP rod-ct K sho-ld be sold at splitoff.

rod-ct K rod-ct L b.

Splitoff >#8 >188

rocess F-rther >1"8  >188  >"8 >1"  >""  >1+8

>2"87888 rod-ct K 187888 -nits ´ >#8E rod-ct L 1"7888 -nits ´ >188E

> #887888 17"887888 > +71887888


Cess: %oint process costs Income c.

'hapter 1+<&actical Decision )aking 17"87888 > 2"87888

2

>#"87888 rod-ct K 187888 -nits ´ >#8E rod-ct L 1"7888 -nits ´ >1"E 1"7888 -nits ´ >""E

> #887888 >+7#+"7888 +"7888

Cess: %oint process costs Income

17887888 >+73887888 17"87888 > #"87888


.

&he Dand* 'ompan* man-fact-res two prod-cts: A and B. Information abo-t the prod-cts is as follows: rod-ct A >1"8 8 > 8

even-e per -nit @ariable costs per -nit 'ontrib-tion margin per -nit &otal demand )achine ho-rs per -nit

1"7888 -nits ." )5

rod-ct B >1+" 8 > "" 1+7888 -nits .+" )5

&here are "7888 machine ho-rs available d-ring the 0-arter. e0-ired: a.

,hich of the prod-cts sho-ld Dand* 'ompan* prod-ce if it can onl* prod-ce one of the prod-cts/

b.

Ass-me that Dand* 'ompan* -ses half of the ho-rs available to prod-ce rod-ct A and half of the ho-rs available to prod-ce rod-ct B. ,hat is Dash4s total contrib-tion margin/

c.

Ass-me that Dand* 'ompan* prod-ces the prod-ct mi; that will ma;imiMe profit. ,hat is Dash4s total contrib-tion margin/

ANS: a.

rod-ct B sho-ld be the prod-ct prod-ced first beca-se it has the highest contrib-tion margin per machine ho-r. rod-ct A: >8 per -nit<." )5 per -nit  >138 per )5 rod-ct B: >"" per -nit<.+" )5 per -nit  >++8 per )5

b.

>6887888


2

)anagerial Acco-nting rod-ct A: +7"88 )5 Q "7888 -nits "7888 ´ >8E rod-ct B: +7"88 )5 Q 187888 -nits 187888 ´ >""E &otal contrib-tion margin

>2"87888 ""87888 >6887888


'hapter 1+<&actical Decision )aking c.

26

>6387888 From re0-irement a7 prod-ce rod-ct B first. 1+7888 -nits ´ .+" )5 per -nit  27888 )5 to prod-ce rod-ct B se remaining +7888 )5 available to prod-ce rod-ct A. +7888 )5<." )5 per -nit  37888 -nits of rod-ct A >+87888 ##87888 >6387888

rod-ct A 37888 -nits ´ >8E rod-ct B 1+7888 -nits ´ >""E &otal contrib-tion margin DIF: 2 !F: p. "22"23 $B%: 3 NA&: AA'SB Anal*tic ( I)A Decision anal*sis .

Soho rod-cts 'orporation prod-ces two prod-cts. &he man-fact-re of these prod-cts is partiall* a-tomated. &otal available labor ho-rs are 3887 and the total available machine ho-rs are #88. &ime re0-irements and contrib-tion margins per -nit for each prod-ct are as follows: rod-ct K

rod-ct L

2

3

4

2

$5

$4

Cabor ho-rs )achine ho-rs 'ontrib-tion margin per -nit e0-ired: a.

,hat is the e0-ation to be ma;imiMed/

b.

,hat are the e0-ations that e;press the constraints/

c.

,hat is the greatest n-mber of -nits of A that can be prod-ced given the constraints/

d.

,hat is the optimal sol-tion/

ANS: a. b. c.

)a;imiMe >"K G >3L )achine ho-rs: Cabor ho-rs: 388<+  +88 #88<3  1"8

3K G +L £ #88 +K G 2L £ 388

&he machine ho-r constraint limits prod-ction of K to 1"8 -nits. d.

K  1+" -nits7 L  "8 -nits.

DIF: 2 !F: p. "38"31 $B%: # NA&: AA'SB Anal*tic ( I)A O-antitative methods This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

38


6.

'aroline 'orporation man-fact-res two different miniat-re models of f-rnit-re7 a table and a chair. &he compan* has "88 feet of l-mber7 388 machine ho-rs7 and #88 direct labor ho-rs available for prod-ction. &he miniat-re tables and chairs provide >" and >3 of contrib-tion margin7 respectivel*. &he time and l-mber re0-irements to b-ild a miniat-re table or chair are as follows: &able Feet of l-mber per -nit " )achine ho-rs per -nit + Direct labor ho-rs per -nit 3

'hair + 2 +

e0-ired: a.

,hat is the ob=ective f-nction being ma;imiMed/

b.

,hat are the constraint e0-ations/

c.

?raph the constraint e0-ations. Identif* the feasible region.

d.

,hat is the optimal sol-tion/

ANS: a. b.

)a;imiMe

>"& G >3'

C-mber: )achine ho-rs: Cabor ho-rs:

"& G +' £ "88 +& G 2' £ 388 3& G +' £ #88

c.

d.

&here are three possible corner sol-tions: 1E +E 2E

&  1887 '  8 &  87 '  122.222 &  #2.#37 '  68.61

')  >"188E G >38E  >"88 ')  >"8E G >3122.222E  >"22.222 ')  >"#2.#3E G >368.61E  >#1.3


Tb_tdm - Relevant Cost

Recommend Documents