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Exam 7: Incremental Analysis for Short-Term Decision Making

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Question 41

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Story Corp.produces three products,and currently has a shortage of machine hours since one of its two machines is down - only 460 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: a.In what order should Story prioritize production of the products? b.How many of each product should be sold while the machine is down to maximize profit? c.What is the total contribution margin if Story prioritizes production according to its limited resources?

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a.A,C,B : CM/hr is $2.50/1 = $2.50 for A...

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Question 42

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Avocado has received a special order for 2,000 units of its product at a special price.The product normally sells for $400 and has the following manufacturing costs: Assume that Avocado has sufficient capacity to fill the order.What special order price should Avocado charge to make a $20,000 incremental profit?

A) $400
B) $360
C) $270
D) $260

E) All of the above
F) C) and D)

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Question 43

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Which of the following is an example of how a service firm might turn unused capacity into revenue using incremental analysis?

Mason has received a special order for 1,000 units of its product at a special price of $250.The product currently sells 18,000 units for $300 and has the following manufacturing costs: Assume that Mason has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable. a.If Mason accepts the order,what effect will the order have on the company's short-term profit? For the next two questions,now assume that Mason has sufficient capacity to fill 500 units of the order without harming normal sales. b.If Mason accepts the order and fills it completely,what effect will the order have on the company's short-term profit? c.If Mason accepts the special order,what average price should Mason charge to make a $20,000 incremental profit?

Clifford,Inc.currently manufactures 2,000 subcomponents in one of its factories.The current unit costs to produce the subcomponents are: Due to a labor strike,Clifford is considering purchasing the subcomponents from an outside supplier for $250 per unit rather than paying the 10% increase in direct labor costs demanded by the union.Fixed overhead is not avoidable.If Clifford purchases the subcomponent from the outside supplier,how much will profit differ from what it would be if it manufactured the subcomponents with the increase in direct labor cost?

Capitol has received a special order for 2,000 units of its product at a special price of $195.The product normally sells for $260 and has the following manufacturing costs: Assume that Capitol has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable. a.If Capital accepts the order,what effect will the order have on the company's short-term profit? b.What minimum price should Capital charge to achieve a $65,000 incremental profit? c.Now assume Capital is currently operating at full capacity and cannot fill the order without harming normal production and sales.If Capitol accepts the order,what effect will the order have on the company's short-term profit?

Spring,Inc.manufactures two products.It currently has 1,000 hours of direct labor and 2,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product. What is the total contribution margin if Spring,Inc.prioritizes production according to its limited resources?

It costs Glenwood,Inc.$70 per unit to manufacture 1,000 units per month of a product that it can sell for $100 each.Alternatively,Glenwood could process the units further into a more complex product,which would cost an additional $40 per unit.Glenwood could sell the more complex product for $145 each.How would processing the product further affect Glenwood's profit?

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?

Ross has received a special order for 10,000 units of its product at a special price of $30.The product normally sells for $40 and has the following manufacturing costs: Assume that Ross has sufficient capacity to fill the order.If Ross accepts the order,what effect will the order have on the company's short-term profit?

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. Pretend transportation (gas,mileage,and parking) cost $200 per class session at the library.If you consider solely the cost - including transportation - of each alternative,which would you choose?

Which of the following costs is not relevant in a special-order decision?

Which of the following statements is false?

Costs that change across decision alternatives are:

Which of the following is not a step in the managerial decision-making process?

A ________ is one that can be attributed to a specific segment of the business.

If a company has idle capacity,it means it has reached the limit on its resources.

The foregone benefit of choosing one alternative over another is measured by:

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. Consider the transportation cost.At what point would you be indifferent between alternatives?

Opportunity costs are not relevant when a company has idle capacity.