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Exam 11: Relevant Costs for Decision Making

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Question 21

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Opportunity costs can be a factor in special order decisions if there is insufficient capacity to meet the special order.

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Question 22

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When resources are constrained, managers are most likely to use which of the following methods to develop decision making information:

A) Simple or multiple regression
B) Standard costs
C) Linear programming
D) High-low method

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Question 23

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A process that restricts overall capacity is known as a bottle limit.

Joint costs are product costs.

If there is no idle capacity then opportunity costs should be considered.

Because the process of allocating joint costs is arbitrary the chosen method should avoid giving the incorrect impression that one or more products is unprofitable.

Outsourcing refers to the practice of finding outside vendors to supply products and services.

Qualitative factors should not be considered in decisions to process further.

Joint products fall into two categories; by-products and split products.

The loss of the contribution margin supplied by regular customers is the opportunity cost of accepting a special order when there is no idle capacity.

Sales value at split off point is a physical output method of allocating joint costs.

Managers should prioritise qualitative factors over strategic goals.

Managers should discontinue a business if which of the following is less than the sum of relevant fixed costs and opportunity costs?

Joint costs are not allocated to individual products.

Separable costs are incremental costs that can be traced to each specific product.

It is usually necessary to trade-off between qualitative and quantitative factors.

An important uncertainty to be considered in regards to outsourcing decisions is whether the vendor or supplier is reliable.

Finders Company manufactures sewing machines and requires 60,000 units of a component that is used in the manufacturing process. If Flinders buys the part from Serrano Brothers, the plant will be idle. Of the fixed overhead, 45% will continue regardless of the decision. The cost to buy the part from Serrano Brothers is $46. The unit cost to make the part is: $\begin{array} { l r } \text { Direct materials } & \$ 12 \\\text { Direct 1abor } & 20 \\\text { Variable overhead } & 12 \\\text { Average fixed overhead } &\underline { 10 }\\\quad \text { Total } & \underline { \underline { \$ 54 } }\end{array}$ Relevant costs to make the part are

Factors that affect the quality of the decision process in non-routine operating decisions include: I $\quad$ Uncertainties II $\quad$ Timeliness III $\quad$ Analysis technique assumptions IV $\quad$ Overall cost structure

In non-routine situations, managers must identify the type of decision to be made. Which of the following is not an example of a non-routine operating decision?