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Exam 11: Decision Making and Relevant Information

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Question 31

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A relevant revenue is a revenue that is a(n) :

A) past revenue
B) future revenue
C) in-hand revenue
D) earned revenue

E) None of the above
F) B) and D)

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Question 32

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Answer the following questions using the information below: Schwimmer Lighting manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year. With a 50-cent price increase, demand is expected to fall by 6,000 units. -Would you recommend the 50-cent price increase?

A) No, because demand decreased.
B) No, because the selling price increases.
C) Yes, because contribution margin per unit increases.
D) Yes, because operating profits increase.

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

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Question 33

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Answer the following questions using the information below: Helmer's Rockers manufactures two models, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model. The following per unit data apply: -If there are 496 machine-hours available per week, how many rockers of each model should Jim Helmer produce to maximize profits?

Avoidable variable and fixed costs should be evaluated when deciding whether to discontinue a product, product line, business segment, or customer.

Unit cost data can most mislead decisions by:

Answer the following questions using the information below: Kolar Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Kolar Manufacturing has excess capacity. The following per unit data apply for sales to regular customers: -For Kolar Manufacturing, what is the minimum acceptable price of this special order?

When a firm has constrained capacity as opposed to surplus capacity, opportunity costs will be:

A segment has the following data: What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments?

Qualitative factors, because they are NOT measured numerically, are unimportant in the decision-making process.

Sunk costs:

When deciding whether to discontinue a segment of a business, relevant costs include all of the following EXCEPT:

Explain why sunk costs are not considered relevant when choosing among alternatives.

When making decisions:

A relevant cost is a cost that is a (n) :

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

Answer the following questions using the information below: Schwimmer Lighting manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year. With a 50-cent price increase, demand is expected to fall by 6,000 units. -When using the five-step decision process, which one of the following steps should be done first?

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are: Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Zephram's change in operating profits if the one-time-only special order is accepted?

An example of a qualitative factor for the decision-making process is:

Discontinuing unprofitable products will increase profitability:

Answer the following questions using the information below: Pizza For Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: -Relevant costs for this decision include: