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Exam 7: Incremental Analysis for Short-Term Decision Making

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Question 31

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A product should be processed further if no additional fixed costs are incurred in its processing.

A) True
B) False

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Question 32

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Pinto Co.has received a special order for 2,000 units of its product at a special price of $75.The product normally sells for $100 and has the following manufacturing costs: Assume that Pinto Co.has sufficient capacity to fill the order without harming normal production and sales.If Pinto Co.accepts the order,what effect will the order have on the company's short-term profit?

A) $30,000 decrease
B) $30,000 increase
C) $50,000 decrease
D) $20,000 increase

E) A) and D)
F) A) and B)

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Question 33

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The quality of the goods in question is irrelevant to a make-or-buy decision.

The decision-making approach that focuses on factors that will change between alternatives is sometimes called all of the following except:

It costs Hickory,Inc.$220 per unit to manufacture 1,000 units per month of a product that it can sell for $290 each.Alternatively,Hickory could sell the units at an earlier stage of processing,which would save $80 per unit.Hickory could sell the simpler product for $200 each.How would selling the simpler product affect Hickory's profit?

Deer currently manufactures a subcomponent that is used in its main product.A supplier has offered to supply all the subcomponents needed at a price of $12.Deer currently produces 80,000 subcomponents at the following manufacturing costs: a.If Deer has no alternative uses for the manufacturing capacity,what would be the profit impact of buying the subcomponents from the supplier? b.If Deer has no alternative uses for the manufacturing capacity,what would be the maximum price per unit they would be willing to pay the supplier? c.Now assume Deer would avoid $120,000 in equipment leases and salaries if the subcomponent were purchased from the supplier.Now what would be the profit impact of buying from the supplier?

In deciding whether to eliminate a business segment,managers should consider which costs and benefits will change as a result of the decision.

Grover Corp.manufactures three products,and is currently facing a labor shortage.The selling price,costs,and labor requirements of the three products are as follows: In what order should Grover Corp.prioritize production of its products to maximize profit during the labor shortage?

Pine Corp.produces three products,and currently has a shortage of machine hours since one of its two machines is down.The selling price,costs,and machine time requirements of the three products are as follows: Pine has unlimited demand for all its products.Which product/s should Pine Corp.produce to maximize profit while the machine is down?

Which of the following is not a true statement about capacity?

You wish to take an Excel course.You may enroll at one within your school or you may take a community class at the local library.You've gathered the following information to aid in your decision-making process. If you enroll in the community class,you will be unable to work at your regular job on weekends for the eight weekend days when the class meets.If you typically earn $500 per weekend shift,which option would you choose (considering enrollment cost and opportunity cost) ?

Dardon Company currently produces three products from a joint process.The joint process has total costs of $250,000 per month.All three products,A,B & C,are immediately saleable as they come out of the joint process.Alternatively,any of the products could continue on with additional processing and be sold as a more complete product.The following information is available: Which of the products should be sold immediately without further processing?

When managers make a decision,they base it strictly on the numerical analysis performed in step three of the decision making process.

If machine hours are a constraining factor,the product with the highest contribution margin per machine hour should be prioritized in production.

Castor Corp.produces three products,and is currently facing a labor shortage - only 3,000 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: How many of each product should be sold during the labor shortage to maximize profit?

Cotton Corp.currently makes 10,000 subcomponents a year in one of its factories.The unit costs to produce are: An outside supplier has offered to provide Cotton Corp with the 10,000 subcomponents at an $84.50 per unit price.Fixed overhead is not avoidable.If Cotton Corp.accepts the outside offer,what will be the effect on short-term profits?

You wish to take an Excel course.You may enroll at one within your school or you may take a community class at the local library.You've gathered the following information to aid in your decision-making process. Considering solely the enrollment cost of each alternative,which would you choose?

Shirley Inc.has three divisions,King,West and Gold.Following is the income statement for the previous year: Of the fixed costs,$300,000 is for corporate costs and is allocated equally to the three divisions. a.How much does Gold Division have in direct fixed costs? b.What is Gold Division's segment margin? c.What would Shirley's profit margin be if Gold Division were dropped?

Which of the following types of decisions involves deciding whether to eliminate a particular division or segment of the business?

You wish to take an Excel course.(Step 1 of the decision-making process. ) You may enroll at one within your school or you may take a community class at the local library.(Step 2 of the decision-making process. ) You've gathered the following information to aid in your decision-making process. This information illustrates which step in the decision-making process?