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Exam 6: Relevant Information for Special Decisions

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Question 61

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Ann is trying to decide which one of two job offers she will accept.Several items are presented below: $\begin{array} { | l | r | r | } \hline & \text { Job Offer A } & \text { Job Offer B } \\\hline \text { (1) Base salary } & \$ 50,000 & \$ 50,000 \\\hline \text { (2) Overtime compensation } & \text { Comp. time } & \text { Hourly rate } \\\hline \text { (3) Moving allowance } & \$ 3,000 & \$ 3,000 \\\hline \text { (4) Signing bonus } & \$ 2,000 & \$ 30 \\\hline \text { (5) Job search costs incurred } & \$ 300 & \$ 500 \\\hline\end{array}$ Select the items that are irrelevant to Ann's decision.

A) (1) ,(2) ,(3) ,(4) ,(5)
B) (2) ,(3) ,(4)
C) (1) ,(3) ,(5)
D) (2) ,(4)

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

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Question 62

True/False

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Monica paid $12 for a music CD for which she later was offered $15.After that someone offered her $18 for the CD.If Monica keeps the CD,the amount of her opportunity cost is $33.

A) True
B) False

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Question 63

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For purposes of decision making,avoidable costs are costs that:

The cost that is avoided when a company eliminates a single item of a product or service is a:

Clean,Inc.cleans and waxes floors for commercial customers.The company is presently operating at less than capacity with equipment and employees idle at times.The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $4,500.The size of the proposed job is 11,000 square feet.The company's normal service costs are as follows: $\begin{array}{c}\begin{array}{|l|}\hline \text {Unit-level materals}\\\hline \text {Uni-level labor}\\\hline \text {Unit-level variable overhead}\\\hline \text {Facility-level overhead}\\\hline \end{array}\begin{array}{l|}\hline \text { \$ 0.18 per square foot}\\\hline \text {\( \$ 0.25 \) per square foot}\\\hline \text {\( \$ 0.08 \) per square foot}\\\hline \text {Allocated at \( \$ 0.10 \) ner square foot}\\\hline \end{array}\end{array}$ If the company accepts the special offer:

Direct labor is an example of a product-level cost.

Which of the following statements is incorrect?

The decision to accept a lower-than-normal selling price may depend on the availability of excess capacity.

Safety Products currently outsources an electrical switch that is a component in its sprinkler systems.The switches are purchased for $20 each.The company is considering making the switches internally and has conducted a study to determine the costs involved.The costs below are projected annual production costs: $\begin{array} { | l |l l | } \hline \text { Unit-level material cost } & \$ & 3 \\\hline \text { Unit-level labor cost } & \$ & 2 \\\hline \text { Unit-level overhead } & \$ & 1 \\\hline \text { Batch-level set-up cost ( } 5,000 \text { units per batch) } & \$ 5,000 \\\hline \text { Product-level supervisory salaries } & \$ 37,500 \\\hline \text { Allocated facility-level costs } & \$ 20,000 \\\hline\end{array}$ Assume that the company needs 15,000 of the switches,which would be produced in three batches.Assume also that the company will still be operating within the relevant range.If Safety decides to make the parts under these conditions,the total relevant costs will be:

A company that provides services (not goods)to its customers may incur costs that are appropriately classified as product-level costs.

ServicePro provides two kinds of services.During the most recent accounting period,the two service lines produced the following operating results: $\begin{array} { | l | r | r | } \hline & \text { Service 1 } & \text { Service 2 } \\\hline \text { Service revenue } & \$ 80,000 & \$ 20,000 \\\hline \text { Unit-level materials } & ( \$ 20,000 ) & ( \$ 2,000 ) \\\hline \text { Unit-level labor } & ( \$ 30,000 ) & ( \$ 14,000 ) \\\hline \text { Product-level selling \& administrative costs } & ( \$ 10,000 ) & ( \$ 2,500 ) \\\hline \text { Company wide facility-level costs } & ( \$ 5,000 ) & ( \$ 5,000 ) \\\hline \text { Net income } & \$ 15,000 & ( \$ 3,500 ) \\\hline & & \\\hline\end{array}$ If the company stops providing Service 2:

Segment reports are used to evaluate the

The best objective when faced with limited resources is to maximize:

Engineering design costs are generally referred to as:

The market value of equipment owned by a company is a sunk cost and should not be taken into account in deciding whether or not to replace the equipment.

Max bought a ticket to the championship baseball game for $75.Someone approaches him outside the stadium and offers him $175 for his ticket.If Max decides to go to the game,instead of selling his ticket,how much does it cost Max to go to the game?

Harris Company currently produces a component that it uses in making some of its products.Harris has calculated the following costs for making the part: $\begin{array}{|l|r|}\hline \text { Unit-level costs } & \\\hline \text { Materials } & \$ 20 \\\hline \text { Labor } & 28 \\\hline \text { Overhead } & 2 \\\hline \text { Allocated facility-level costs } & 10 \\\hline \text { Total cost } & \$ 60 \\\hline\end{array}$ Harris is considering outsourcing the component.A supplier has offered to sell the component to Harris for $52 each.Harris needs 8,000 units each year. Required: Should Harris outsource the component? Support your answer with appropriate computations.

The book value of equipment generally is one of the most important factors to consider in deciding to replace the equipment.

All of the following are variables that could be considered in a decision to outsource a component that is currently being produced in house.Which of the following is not likely to be relevant?

How can managers manage (that is,reduce the impact of)constraints?