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Exam 11: Relevant Costs for Decision Making

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Question 81

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Direct fixed costs are irrelevant in outsourcing decisions.

A) True
B) False

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Question 82

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Which of the following are an option to relax a constraint?

A) Reject customer orders.
B) Purchase goods or services from an outside suppliers
C) Increase internal capacity
D) b and c

E) B) and C)
F) A) and B)

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Question 83

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Non routine operating decisions focus on making use of existing capacity.

Special orders require idle capacity.

Accuracy of cost estimates is one of the uncertainties in this type of decision. I $\quad$ Make or buy II $\quad$ Special order III $\quad$ Product emphasis

A process, part or machine that limits overall capacity is called a:

Trade-offs may be required between:

The general rule for choosing the product mix under constraints is to emphasise products with the highest contribution margin per unit of the constrained resource.

In the decision to drop a product line, avoidable fixed costs are classified as:

Existing variable costs are irrelevant in special order decisions.

To make a decision about a special order, managers need to know whether:

Sensitivity analysis can be used to manipulate the degree of risk in various options.

The relevant fixed costs for a keep or drop decision are the unavoidable fixed costs.

The gross margin is calculated by subtracting joint costs from sales.

Reconnect Ltd has equipment that is in high demand, but has a limited amount of time available. The equipment can be used to produce a number of different products. The following data are available: $\begin{array} { | l | l | l | l | } \hline \text { Product } & \text { Unit Price } & \text { Unit Variable Cost } & \text { Units Per Hour } \\\hline \text { HX } & \$ 200 & \$ 100 & 8 \\\hline \text { CL } & \$ 300 & \$ 150 & 2 0 \\\hline \text { KB } & \$ 300 & \$ 125 & 15 \\\hline \text { JP } & \$ 100 & \$ 70 & 50 \\\hline\end{array}$ Which product should be emphasised first?

The process for making non-routine operating decisions:

Depreciation on existing equipment is special order analysis is considered to be:

Decision maker bias means that decision makers should rely solely on quantitative data as there is less uncertainty associated with it.

Reality Planet Ltd. sells product a model star at a price of $48 a unit. The per-unit cost data are: direct materials $15, direct labour $10, and overhead $12 (50% fixed and 50% variable) . Reality Planet has sufficient capacity to accept a special order for 40,000 units just received. Selling costs associated with this order would be $3 per unit. At a selling price of $36 per unit, the operating profit will:

Which of these is an opportunity cost associated with dropping a business segment?