63931187 decision theory and operation decision analysis

5/24/2018 63931187 Decision Theory and Operation Decision Analysis

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PART 4A

DECISION THEORY AND

INFORMATION SYSTEMS

261 QUESTIONS

[Fact Pattern #1]Stewart Industries has been producing two bearings,components B12 and B18, for use in production

B12 B18 !!!!!! !!!!!!"achine hours reuired per unit 2$ %&Standard cost per unit' (irect materia) * 22$ * %+$ (irect )abor && $&"anufacturing o-erhead' .ariab)e /See 0ote 1 2&& 22$ Fied /See 0ote 2 %+$ $& !!!!!! !!!!!! *12&& *1$&& 333333 333333Stewart4s annua) reuirement for these components is8,&&& units of B12 and 11,&&& units of B18 5ecent)6,Stewart4s management decided to de-ote additiona)machine time to other product )ines resu)ting in on)6 1,&&&machine hours per 6ear that can be dedicated to theproduction of the bearings 7n outside compan6 hasoffered to se)) Stewart the annua) supp)6 of the bearings atprices of *112$ for B12 and *1%$& for B18 Stewartwants to schedu)e the otherwise id)e 1,&&& machine hoursto produce bearings so that the compan6 can minimie itscosts /maimie its net benefits

0ote 1 .ariab)e manufacturing o-erhead is app)ied on thebasis of direct )abor hours

0ote 2 Fied manufacturing o-erhead is app)ied on the

basis of machine hours

[1] Source' 9"7 &:8: $!2:/5efers to Fact Pattern #1;he net benefit /)oss per machine hour that wou)d resu)t ifStewart accepts the supp)ier4s offer of *1%$& per unit for9omponent B18 is

7 *$&

B */1&&

9 */1+$

( Some amount other than those gi-en

[2] Source' 9"7 &:8: $!2+/5efers to Fact Pattern #1Stewart wi)) maimie its net benefits b6

7 Purchasing ,8&& units of B12 and manufacturingthe remaining bearings

B Purchasing 8,&&& units of B12 and manufacturing11,&&& units of B18

9 Purchasing 11,&&& units of B18 and manufacturing8,&&& units of B12

( Purchasing ,&&& units of B18 and manufacturingthe remaining bearings

[%] Source' 9"7 &:8: $!28

/5efers to Fact Pattern #17ssume that Stewart4s id)e capacit6 of 1,&&& machinehours has a traceab)e a-oidab)e annua) fied cost of*,&&& that wi)) continue if the capacit6 is not used ;hemaimum price Stewart wou)d be wi))ing to pa6 a supp)ierfor component B18 is

7 *1&$&

B *1&&

9 *1$&


[Fact Pattern #2]


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9ohasset for *12$ each, de)i-ered If 9ohasset current)6has id)e capacit6 that cannot be used, accepting the offerwi))

7 (ecrease the hand)e unit cost b6 *&$

B Increase the hand)e unit cost b6 *1$

9 (ecrease the hand)e unit cost b6 *1$

( Increase the hand)e unit cost b6 *&$

[Fact Pattern #%]C)eason 9o has two products, a froen dessert andread6!to!baDe breaDfast ro))s, read6 for introduction


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% 5esearch and de-e)opment costs incurred in priormonths, to be considered in a product!introduction decision

;he cost of a specia) de-ice that is necessar6 if a specia)order is accepted$ ;he cost of obso)ete in-entor6 acuired se-era) 6earsago, to be considered in a Deep!-ersus!disposa) decision

[1] Source' 9"7 1288 $!12/5efers to Fact Pattern #;he costs described in situations 1 and are

7 Prime costs

B SunD costs

9 (iscretionar6 costs

( 5e)e-ant costs

[1$] Source' 9"7 1288 $!1%/5efers to Fact Pattern #;he costs described in situations 2, %, and $ are

7 SunD costs

B (iscretionar6 costs

9 5e)e-ant costs

( (ifferentia) costs

[1:] Source' 9"7 12A& !%5e)e-ant or differentia) cost ana)6sis

7 ;aDes a)) -ariab)e and fied costs into account to

ana)6e decision a)ternati-es

B 9onsiders on)6 -ariab)e costs as the6 change witheach decision a)ternati-e

9 9onsiders a)) -ariab)e and fied costs as the6change with each decision a)ternati-e

( 7))ows the decision maDer to group a)) t6pes ofcosts together to faci)itate decision maDing

[1+] Source' 9"7 12A& !12Gpportunit6 costs are

7 0ot used for decision maDing

B ;he same as -ariab)e costs

9 @ua) to historica) costs

( 5e)e-ant to decision maDing

[Fact Pattern #$]5egis 9ompan6 manufactures p)ugs used in itsmanufacturing c6c)e at a cost of *%: per unit that inc)udes*8 of fied o-erhead 5egis needs %&,&&& of these p)ugsannua))6, and Gr)an 9ompan6 has offered to se)) these unitsto 5egis at *%% per unit If 5egis decides to purchase thep)ugs, *:&,&&& of the annua) fied o-erhead app)ied wi)) bee)iminated, and the compan6 ma6 be ab)e to rent the faci)it6

pre-ious)6 used for manufacturing the p)ugs

[18] Source' 9"7 &:A1 !1/5efers to Fact Pattern #$

If 5egis 9ompan6 purchases the p)ugs but does not rentthe unused faci)it6, the compan6 wou)d

7 Sa-e *%&& per unit

B ose *:&& per unit

9 Sa-e *2&& per unit

( ose *%&& per unit

[1A] Source' 9"7 &:A1 !1$/5efers to Fact Pattern #$If the p)ugs are purchased and the faci)it6 rented, 5egis9ompan6 wishes to rea)ie *1&&,&&& in sa-ings annua))6;o achie-e this goa), the minimum annua) rent on the faci)it6must be

7 *1&,&&&

B *&,&&&

9 *+&,&&&

( *1A&,&&&

[2&] Source' 9"7 12A2 !2Jhat is the opportunit6 cost of maDing a component part ina factor6 gi-en no a)ternati-e use of the capacit6K

7 ;he -ariab)e manufacturing cost of the component

B ;he tota) manufacturing cost of the component

9 ;he tota) -ariab)e cost of the component

( Lero

[21] Source' 9"7 12A% !19ope)and, Inc produces M!$+ in a =oint manufacturingprocess ;he compan6 is stud6ing whether to se)) M!$+ atthe sp)it!off point or upgrade the product to becomeM6)ene ;he fo))owing information has been gathered

1 Se))ing price per pound of M!$+2 .ariab)e manufacturing costs of the upgrade process% 7-oidab)e fied costs of the upgrade process Se))ing price per pound of M6)ene$ Hoint manufacturing costs to produce M!$+Jhich of these items shou)d be re-iewed when maDing theupgrade decisionK

7 1, 2, and

B 1, 2, %, and

9 1, 2, %, , and $

( 1, 2, , and $

[22] Source' 9"7 128$ $!2A;he opportunit6 cost of maDing a component part in afactor6 with no ecess capacit6 is the

7 .ariab)e manufacturing cost of the component

B ;ota) manufacturing cost of the component

9 9ost of the production gi-en up in order to

manufacture the component

( 0et benefit forgone from the best a)ternati-e useof the capacit6 reuired


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[Fact Pattern #:]e)and "anufacturing, uses 1& units of Part 0umber NH%+each month in the production of radar euipment ;he unitcost to manufacture 1 unit of NH%+ is presented be)ow

(irect materia)s * 1,&&&"ateria)s hand)ing /2&> of direct materia) cost 2&&(irect )abor 8,&&&"anufacturing o-erhead /1$&> of direct )abor 12,&&& !!!!!!!;ota) manufacturing cost *21,2&& 3333333"ateria) hand)ing represents the direct -ariab)e costs of the5ecei-ing (epartment that are app)ied to direct materia)sand purchased components on the basis of their cost ;hisis a separate charge in addition to manufacturing o-erheade)and4s annua) manufacturing o-erhead budget is one!third-ariab)e and two!thirds fied Scott Supp)6, one ofe)and4s re)iab)e -endors, has offered to supp)6 Part0umber NH%+ at a unit price of *1$,&&&

[2%] Source' 9"7 128+ $!28/5efers to Fact Pattern #:If e)and purchases the NH%+ units from Scott, the capacit6e)and used to manufacture these parts wou)d be id)eShou)d e)and decide to purchase the parts from Scott, theunit cost of NH%+ wou)d

7 Increase b6 *,8&&

B (ecrease b6 *:,2&&

9 (ecrease b6 *%,2&&

( 9hange b6 some amount other than those gi-en

[2] Source' 9"7 128+ $!2A/5efers to Fact Pattern #:7ssume e)and "anufacturing is ab)e to rent a)) id)ecapacit6 for *2$,&&& per month If e)and decides topurchase the 1& units from Scott Supp)6, e)and4s month)6cost for NH%+ wou)d

7 Increase *8,&&&

B Increase *2%,&&&

9 (ecrease *+,&&&

( 9hange b6 some amount other than those gi-en

[2$] Source' 9"7 128+ $!%&/5efers to Fact Pattern #:7ssume that e)and "anufacturing does not wish tocommit to a renta) agreement but cou)d use id)e capacit6 tomanufacture another product that wou)d contribute*$2,&&& per month If e)and e)ects to manufacture NH%+in order to maintain ua)it6 contro), e)and4s opportunit6cost is

7 *18,&&&

B */2&,&&&

9 *,&&&


[2:] Source' 9"7 &:A& $!2%Jhen a decision is made in an organiation, it is se)ected

from a group of a)ternati-e courses of action ;he )ossassociated with choosing the a)ternati-e that does notmaimie the benefit is the

7 0et rea)iab)e -a)ue

B @pected -a)ue

9 Gpportunit6 cost

( Incrementa) cost

[2+] Source' 9"7 &:A& $!25e)e-ant costs refer to

7 7)) fied costs

B 9osts that wou)d be incurred within the re)e-antrange of production

9 Past costs that are epected to be different in thefuture

( 7nticipated future costs that wi)) differ among-arious a)ternati-es

[28] Source' 9"7 &:A& $!2:Jhich one of the fo))owing costs wou)d be re)e-ant inshort!term decision maDingK

7 Incrementa) fied costs

B 7)) costs of in-entor6

9 ;ota) -ariab)e costs that are the same in theconsidered a)ternati-es

( Gpportunit6 costs that are the same in theconsidered a)ternati-es

[2A] Source' 9"7 12A& !11;he re)e-ance of a particu)ar cost to a decision isdetermined b6 the

7 Sie of the cost

B 5isDiness of the decision

9 Potentia) effect on the decision

( 7ccurac6 and -erifiabi)it6 of the cost

[%&] Source' Pub)isher

In a maDe!or!bu6 situation, which of the fo))owingua)itati-e factors is usua))6 consideredK

7 Specia) techno)og6

B SDi))ed )abor

9 Specia) materia)s reuirements

( 7)) of the answers are correct

[%1] Source' Pub)isherIn a maDe!or!bu6 decision, the decision process fa-ors theuse of tota) costs rather than unit costs ;he reason is that

7 Onit cost ma6 be ca)cu)ated based on different-o)umes

B Irre)e-ant costs ma6 be inc)uded in the unit


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amounts

9 Fied costs ma6 be inc)uded in the unit amounts


[%2] Source' Pub)isherJhich of the fo))owing ua)itati-e factors fa-ors the bu6choice in a maDe!or!bu6 decisionK

7 "aintaining a )ong!run re)ationship with supp)iers

B ?ua)it6 contro) is critica)

9 ;he a-ai)abi)it6 of id)e capacit6


[%%] Source' 9I7 11A2 I.!187 manufacturer has been approached b6 a new customerwho wants to p)ace a one!time order for a componentsimi)ar to one that the manufacturer maDes for anothercustomer @isting sa)es wi)) not be affected b6 acceptanceof this order ;he manufacturer has a po)ic6 of setting itstargeted se))ing price at :&> o-er fu)) manufacturing cost;he manufacturing costs and the targeted se))ing price forthe eisting product are presented as fo))ows

(irect materia)s *2%&(irect )abor %:&.ariab)e manufacturing o-erhead /app)ied at +$> of direct )abor cost 2+&Fied manufacturing o-erhead /app)ied at 1$&> of direct )abor cost $& !!!!!! ;ota) manufacturing cost *1&&"arDup /:&> of fu)) manufacturing cost 8& !!!!!! ;argeted se))ing price *22&

333333;he manufacturer has ecess capacit6 to produce theuantit6 of the component desired b6 the new customer;he direct materia)s used in the component for the newcustomer wou)d cost the manufacturer *&2$ )ess than thecomponent current)6 being made ;he -ariab)e se))ingepenses /pacDaging and shipping wou)d be the same, or*&A& per unit

Onder these circumstances, the minimum unit price at whichthe manufacturer wou)d accept the specia) order is oneeceeding

7 *8%$

B *A2$

9 *1&&

( *18&

[%] Source' 9I7 &$A% I.!1A;he 7B9 9ompan6 manufactures components for use inproducing one of its finished products Jhen 12,&&& unitsare produced, the fu)) cost per unit is *%$, separated asfo))ows'

(irect materia)s * $ (irect )abor *1$ .ariab)e o-erhead *1& Fied o-erhead * $

;he ML 9ompan6 has offered to se)) 12,&&& componentsto 7B9 for *%+ each If 7B9 accepts the offer, some ofthe faci)ities current)6 being used to manufacture thecomponents can be rented as warehouse space for

*&,&&&


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maimie the benefit is the

7 0et rea)iab)e -a)ue

B @pected -a)ue

9 Gpportunit6 cost

( (ifferentia) cost

[%A] Source' 9"7 128$ $!%&;he opportunit6 cost of maDing a component part in afactor6 with ecess capacit6 for which there is noa)ternati-e use is

7 ;he tota) manufacturing cost of the component

B ;he tota) -ariab)e cost of the component

9 ;he fied manufacturing cost of the component

( Lero

[&] Source' 9"7 12++ $!1;he term incrementa) cost refers to

7 ;he difference in tota) costs that resu)ts fromse)ecting one choice instead of another

B ;he profit forgone b6 se)ecting one choice insteadof another

9 7 cost that continues to be incurred in the absenceof acti-it6

( 7 cost common to a)) choices in uestion and notc)ear)6 or feasib)6 a))ocab)e to an6 of them

[1] Source' 9I7 118A I.!2$Jhich costs are re)e-ant to the decision to further processa product be6ond its current stateK

7 Hoint costs

B Incrementa) costs

9 7bsorption costs

( Fied factor6 o-erhead

[Fact Pattern #+]"anagement accountants are freuent)6 asDed to ana)6e-arious decision situations, inc)uding the fo))owing'

I ;he cost of a specia) de-ice that is necessar6 if a specia)order is acceptedII ;he cost proposed annua))6 for the p)ant ser-ice for thegrounds at corporate headuartersIII Hoint production costs incurred, to be considered in ase))!at! sp)it -ersus a process!further decisionI. ;he costs associated with a)ternati-e uses of p)antspace, to be considered in a maDeEbu6 decision . ;he cost of obso)ete in-entor6 acuired se-era) 6earsago, to be considered in a Deep!-ersus!disposa) decision

[2] Source' 9"7 &:A !1A/5efers to Fact Pattern #+;he costs described in situations I and I. are

7 Prime costs

B SunD costs


( 5e)e-ant costs

[%] Source' 9"7 &:A !2&/5efers to Fact Pattern #+;he costs described in situations III and . are

7 Prime costs

B SunD costs


( Imputed costs

[] Source' 9"7 &:A !21/5efers to Fact Pattern #+;he cost described in situation II is a

7 Prime cost

B (iscretionar6 cost

9 5e)e-ant cost

( Imputed cost

[$] Source' 9"7 &:A1 !+;ota) unit costs are

7 5e)e-ant for cost!-o)ume!profit ana)6sis

B 0eeded for determining sunD costs

9 Irre)e-ant in margina) ana)6sis

( Independent of the cost s6stem used to generatethem

[:] Source' 9"7 &:A1 !12;he term re)e-ant cost app)ies to a)) the fo))owing decisionsituations ecept the

7 7cceptance of a specia) order

B "anufacture or purchase of component parts

9 (etermination of a product price

( 5ep)acement of euipment

[+] Source' 9"7 &:A1 !1&SunD costs

7 7re substitutes for opportunit6 costs

B In and of themse)-es are not re)e-ant to decisionmaDing

9 7re re)e-ant to decision maDing

( 7re fied costs

[8] Source' 9"7 &:A1 !1%7merican 9oat 9ompan6 estimates that :&,&&& specia)


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ippers wi)) be used in the manufacture of men4s =acDetsduring the net 6ear 5eese Lipper 9ompan6 has uoted aprice of *:& per ipper 7merican wou)d prefer topurchase $,&&& units per month, but 5eese is unab)e toguarantee this de)i-er6 schedu)e In order to ensurea-ai)abi)it6 of these ippers, 7merican is considering thepurchase of a)) :&,&&& units at the beginning of the 6ear7ssuming 7merican can in-est cash at 8>, the compan64sopportunit6 cost of purchasing the :&,&&& units at thebeginning of the 6ear is

7 *1,%2&

B *1,&

9 *1,$&&

( *2,:&

[Fact Pattern #8]9ondensed month)6 operating income data for Norbin Incfor "a6 fo))ows'

Orban Suburban Store Store ;ota) !!!!!!! !!!!!!!! !!!!!!!!Sa)es *8&,&&& *12&,&&& *2&&,&&&.ariab)e costs %2,&&& 8,&&& 11:,&&& !!!!!!! !!!!!!!! !!!!!!!! 9ontribution margin *8,&&& *%:,&&& *8,&&&(irect fied costs 2&,&&& &,&&& :&,&&& !!!!!!! !!!!!!!! !!!!!!!! Store segment margin *28,&&& */,&&& *2,&&&9ommon fied cost ,&&& :,&&& 1&,&&& !!!!!!! !!!!!!!! !!!!!!!! Gperating income *2,&&& */1&,&&& *1,&&& 3333333 33333333 333333337dditiona) information regarding Norbin4s operations fo))ows' Gne!fourth of each store4s direct fied costs wou)dcontinue if

either store is c)osed Norbin a))ocates common fied costs to each store on thebasis of sa)es do))ars "anagement estimates that c)osing the Suburban Storewou)d resu)t in a 1&> decrease in the Orban Store4s sa)es, whi)e c)osingthe Orban Store wou)d not affect the Suburban Store4s sa)es ;he operating resu)ts for "a6 are representati-e of a))months

[A] Source' 9"7 &:A !2$/5efers to Fact Pattern #87 decision b6 Norbin to c)ose the Suburban Store wou)dresu)t in a month)6 increase /decrease in Norbin4s

operating income of

7 */1&,8&&

B */:,&&&

9 */1,2&&

( *,&&&

[$&] Source' 9"7 &:A !2:/5efers to Fact Pattern #8Norbin is considering a promotiona) campaign at theSuburban Store that wou)d not affect the Orban StoreIncreasing annua) promotiona) epense at the Suburban

Store b6 *:&,&&& in order to increase this store4s sa)es b61&> wou)d resu)t in a month)6 increase /decrease inNorbin4s operating income during the 6ear /rounded of

7 */$,&&&

B */1,&&

9 *8+

( *+,&&&

[$1] Source' 9"7 &:A !2+/5efers to Fact Pattern #8Gne!ha)f of the Suburban Store4s do))ar sa)es are fromitems so)d at -ariab)e cost to attract customers to the storeNorbin is considering the de)etion of these items, a mo-ethat wou)d reduce the Suburban Store4s direct fiedepenses b6 1$> and resu)t in a 2&> )oss of SuburbanStore4s remaining sa)es -o)ume ;his change wou)d notaffect the Orban Store 7 decision b6 Norbin to e)iminate

the items so)d at cost wou)d resu)t in a month)6 increase/decrease in Norbin4s operating income of

7 */$,2&&

B */1,2&&

9 */+,2&&

( *2,&&&

[Fact Pattern #A]Cear6 "anufacturing has assemb)ed the data pertaining totwo popu)ar products as fo))ows Past eperience hasshown that the fied manufacturing o-erhead componentinc)uded in the cost per machine hour a-erages *1& Cear6has a po)ic6 of fi))ing a)) sa)es orders, e-en if it meanspurchasing units from outside supp)iers

@)ectric B)ender "ier

!!!!!!!!! !!!!!!!!!(irect materia)s * : *11(irect )abor AFactor6 o-erhead at *1: per hour 1: %29ost if purchased from an outside supp)ier 2& %87nnua) demand /units 2&,&&& 28,&&&

[$2] Source' 9"7 1288 $!1$/5efers to Fact Pattern #AIf $&,&&& machine hours are a-ai)ab)e, and Cear6"anufacturing desires to fo))ow an optima) strateg6, itshou)d

7 Produce 2$,&&& e)ectric miers and purchase a))other units as needed

B Produce 2&,&&& b)enders and 1$,&&& e)ectricmiers, and purchase a)) other units as needed

9 Produce 2&,&&& b)enders and purchase a)) otherunits as needed

( Purchase a)) units as needed

[$%] Source' 9"7 1288 $!1:/5efers to Fact Pattern #AJith a)) other things constant, if Cear6 "anufacturing isab)e to reduce the direct materia)s for an e)ectric mier to*: per unit, the compan6 shou)d

7 Produce 2$,&&& e)ectric miers and purchase a))other units as needed

B Produce 2&,&&& b)enders and 1$,&&& e)ectric


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miers, and purchase a)) other units as needed

9 Produce 2&,&&& b)enders and purchase a)) otherunits as needed

( Purchase a)) units as needed

[$] Source' 9"7 12A& !1&9osts re)e-ant to a maDe!or!bu6 decision inc)ude -ariab)emanufacturing costs as we)) as

7 7-oidab)e fied costs

B Factor6 depreciation

9 Ona-oidab)e costs

( Propert6 taes

[$$] Source' 9"7 &:A1 !A7 compan64s approach to a maDe!or!bu6 decision

7 (epends on whether the compan6 is operating ator be)ow breaDe-en

B (epends on whether the compan6 is operating ator be)ow norma) -o)ume

9 In-o)-es an ana)6sis of a-oidab)e costs

( Shou)d use absorption /fu)) costing

[$:] Source' 9"7 &:A1 !8In a manufacturing en-ironment, the best short!term profitmaimiing approach wou)d be to

7 "aimie unit gross profit times the number ofunits so)d

B "inimie -ariab)e costs per unit times the numberof units produced

9 "inimie fied o-erhead cost per unit b6producing at fu)) capacit6

( "aimie contribution per unit times the numberof units so)d

[$+] Source' 9"7 &:A2 !2$aure) 9orporation has its own cafeteria with the fo))owingannua) costs'

Food *1&&,&&&

abor +$,&&& G-erhead 11&,&&& !!!!!!!! ;ota) *28$,&&& 33333333;he o-erhead is &> fied Gf the fied o-erhead,*2$,&&& is the sa)ar6 of the cafeteria super-isor ;heremainder of the fied o-erhead has been a))ocated fromtota) compan6 o-erhead 7ssuming the cafeteria super-isorwi)) remain and the aure) wi)) continue to pa6 hisEhersa)ar6, the maimum cost aure) wi)) be wi))ing to pa6 anoutside firm to ser-ice the cafeteria is

7 *28$,&&&

B *1+$,&&&

9 *21A,&&&

( *21,&&&

[$8] Source' 9"7 &:A2 !2:H H "otors, Inc emp)o6s $ sa)es personne) to marDet its)ine of )uur6 automobi)es ;he a-erage car se))s for*2%,&&&, and a :> commission is paid to the sa)espersonH H "otors is considering a change to a commissionarrangement that wou)d pa6 each sa)esperson a sa)ar6 of*2,&&& per month p)us a commission of 2> of the sa)esmade b6 that sa)esperson ;he amount of tota) month)6 carsa)es at which H H "otors wou)d be indifferent as to whichp)an to se)ect is

7 *2,2$&,&&&

B *%,&&&&&&

9 *1,$&&,&&&

( *1,2$&,&&&

[$A] Source' 9"7 12A2 !1;he opportunit6 cost of maDing a component part in afactor6 with no ecess capacit6 is the

7 .ariab)e manufacturing cost of the component

B Fied manufacturing cost of the component

9 9ost of the production gi-en up in order tomanufacture the component

( 0et benefit gi-en up from the best a)ternati-e useof the capacit6

[:1] Source' 9"7 12A2 !/5efers to Fact Pattern #1&

7ssume 5ichardson "otors is ab)e to rent a)) id)e capacit6for *$&,&&& per month If 5ichardson decides to purchasethe 1& units from Simpson 9astings, 5ichardson4s month)6cost for ;%&$ wou)d

7 (ecrease *1,&&&

B Increase *:,&&&

9 (ecrease *:,&&&

( Increase *A:,&&&

[:2] Source' 9"7 12A2 !$/5efers to Fact Pattern #1&

7ssume the renta) opportunit6 does not eist and5ichardson "otors cou)d use the id)e capacit6 tomanufacture another product that wou)d contribute*1&,&&& per month If 5ichardson chooses tomanufacture the ten ;%&$ units in order to maintain ua)it6contro), 5ichardson4s opportunit6 cost is

7 *:8,&&&

B *88,&&&

9 *8,&&&

( */A:,&&&

[:%] Source' 9"7 12A !19ope)and Inc produces M!$+ in a =oint manufacturingprocess ;he compan6 is stud6ing whether to se)) M!$+ atthe sp)it!off point or upgrade the product to become


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M6)ene ;he fo))owing information has been gathered'

I Se))ing price per pound of M!$+II .ariab)e manufacturing costs of upgrade processIII 7-oidab)e fied costs of upgrade processI. Se))ing price per pound of M6)ene . Hoint manufacturing costs to produce M!$+Jhich items shou)d be re-iewed when maDing the upgradedecisionK

7 I, II, and I.

B I, II, III, and I.

9 7)) items

( I, II, I., and .

[:] Source' 9"7 12+ %!22;he 9ost 7ccounting Standards Board /97SB wasestab)ished b6

7 ;he Financia) 7ccounting Standards Board/F7SB

B ;he Cenera) 7ccounting Gffice /C7G

9 ;he OS 9ongress

( ;he Securities and @change 9ommission /S@9

[:$] Source' 9"7 12+ %!2%;he 9ost 7ccounting Standards Board4s /97SB purposeis to

7 (e-e)op accounting princip)es and standardpractices for industr6

B 7chie-e uniformit6 and consistenc6 in cost

accounting standards for contracts and subcontractswith the OS go-ernment

9 JorD in con=unction with the Securities and@change 9ommission /S@9 in eaminingregistration forms and statements fi)ed b6corporations

( 7dminister a)) contracts and subcontracts withfedera) agencies

[::] Source' 9"7 12A$ !217 decision!maDing concept, described as Qthe contributionto income that is forgone b6 not using a )imited resource forits best a)ternati-e use,Q is ca))ed

7 "argina) cost

B Incrementa) cost

9 Potentia) cost

( Gpportunit6 cost

[:+] Source' 9"7 &:A2 !2+7B( 5ea)t6 manages fi-e apartment comp)ees in athree!state area Summar6 income statements for eachapartment comp)e are shown as fo))ows

7B( 5ea)t6

Summar6 Income Statements /in thousands Gne ;wo ;hree Four Fi-e !!!!!! !!!!!! !!!!!! !!!!!! !!!!!!

5enta) income *1,&&& *1,21& *2,%+ *1,8+8 *1,&:$@penses 8&& 1,%&& 2,:&& 2,&& 1,%&& !!!!!! !!!!!! !!!!!! !!!!!! !!!!!! Profit * 2&& * /A& * /2$% * /$22 * /2%$ 333333 333333 333333 333333 333333Inc)uded in the epenses is *1,2&&,&&& of corporateo-erhead a))ocated to the apartment comp)ees based onrenta) income ;he apartment comp)e/es that 7B(shou)d consider se))ing is /are

7 7partment comp)ees ;wo, ;hree, Four, andFi-e

B 7partment comp)ees ;hree, Four, and Fi-e

9 7partment comp)ees Four and Fi-e

( 7partment comp)e Four

[:8] Source' 9"7 &:A2 !28Power S6stems, Inc manufactures =et engines for theOnited States armed forces on a cost!p)us basis ;he costof a particu)ar =et engine the compan6 manufactures isshown as fo))ows

(irect materia)s *2&&,&&&(irect )abor 1$&,&&&G-erhead' Super-isor4s sa)ar6 2&,&&& Fringe benefits on direct )abor 1$,&&& (epreciation 12,&&& 5ent 11,&&& !!!!!!!!;ota) cost *&8,&&& 33333333If production of this engine were discontinued, theproduction capacit6 wou)d be id)e, and the super-isorwou)d be )aid off Jhen asDed to bid on the net contractfor this engine, the minimum unit price that Power S6stems

shou)d bid is

7 *&8,&&&

B *%:$,&&&

9 *%A+,&&&

( *%8$,&&&

[:A] Source' 9I7 &$A2 III!217s part of the decision!maDing process, a)ternati-eso)utions ordinari)6 shou)d be screened for the mostappea)ing ba)ance of effecti-eness and efficienc6 in -iew ofre)e-ant constraints and intangib)es Jhen a prob)em is

reso)-ed b6 se)ecting a course of action that meets theminimum constraints, a manager is said to be

7 Satisficing

B Gptimiing

9 Idea)iing

( "aimiing

[+&] Source' 9I7 &$A2 III!A&7 compan6 is about to introduce a new ser-ice and wishesto de-e)op a new s)ogan and )ogo to be used in ad-ertisingand on compan6 pub)ications ou ha-e been chosen to

participate in this process and to )ooD at past s)ogans,)ogos, and suggestions gi-en b6 the ad-ertising agenc6ou are not )imited to the suggested ideas and ha-e beenencouraged to suggest origina) ideas of 6our own Jhich of


10/78

the fo))owing techniues is most appropriate to useK

7 Brainstorming

B .a)ue ana)6sis

9 Free association

( 7ttribute )isting

[+1] Source' 9I7 &$A2 III!A17 compan6 has a computer that it no )onger needs becauseof a discontinued operation 9urrent)6, there are se-era)computer pro=ects that ma6 be ab)e to use the machine butsome modification wi)) be necessar6 if such new app)icationis to be successfu) Jhich of the fo))owing techniues ismost appropriate to useK

7 7ttribute )isting

B Gperations research

9 "orpho)ogica) matri ana)6sis

( S6nectics

[+2] Source' 9I7 &$A2 III!A27 compan6 has eperienced numerous comp)aints becausea passenger door has not opened smooth)6 7)) attempts torepair the door ha-e fai)ed ;he item is no )onger underwarrant6 and the manufacturer has informed the compan6that a -er6 epensi-e new door must be purchased andinsta))ed to so)-e the prob)em ou ha-e been asDed tosuper-ise an attempt b6 6our engineering department tocome up with )ess epensi-e a)ternati-e so)utions Jhich ofthe fo))owing techniues is most appropriate to useK

7 Free association

B Gperations research

9 B)astR then refine

( @disonian

[+%] Source' 9I7 &$A2 III!A%7 compan6 is concerned that spare parts in-entories aretoo )arge It has attempted to Deep critica) parts for its f)eet

in stocD so that euipment wi)) ha-e minima) downtime"anagement wants to Dnow what the optima) spare partsin-entor6 shou)d be if downtime is estimated to cost *1$&per da6 9arr6ing cost and order cost ha-e not beenmeasured ou ha-e been asDed to maDe a forma)

recommendation on spare parts stocDing )e-e)s Jhich ofthe fo))owing techniues is most appropriate to useK

7 Gperations research

B .a)ue ana)6sis

9 7ttribute )isting

( Brainstorming

[+] Source' 9I7 &$A: II!27n organiation4s eecuti-e committee, meeting to so)-e animportant prob)em, spent %& minutes ana)6ing data anddebating the cause of the prob)em Fina))6, the6 agreed and

cou)d mo-e on to the net step Possib)e steps in thecreati-e prob)em!so)-ing process are )isted be)ow Jhichstep shou)d the committee perform netK

7 Se)ect a so)ution

B Cenerate a)ternati-e so)utions

9 Identif6 the prob)em

( 9onsider the reaction of competitors to -ariouscourses of action

[+$] Source' 9I7 &$A II!$Jhich of the fo))owing is deducti-e reasoningK

7 5easoning from one or more particu)ar facts toreach a genera) conc)usion

B 5easoning on a post hoc basis

9 5easoning from the genera) to the particu)ar

( 5easoning through the de-e)opment of a carefu))6constructed h6pothesis

[+:] Source' 9I7 11A II!In maDing management decisions, the concept ofprobabi)it6 is most c)ose)6 re)ated to which of thefo))owingK

7 "anagement4s confidence in its contro) s6stems

B Jhether a gi-en e-ent wi)) occur

9 ;he a-ai)abi)it6 of factua) information abouta)ternati-es

( "anagement4s abi)it6 to cope with sub=ecti-einformation

[++] Source' 9I7 11A II!$

Beha-iora) scientists ha-e identified human tendencies thatcan erode the ua)it6 of decision maDing Jhich of thefo))owing best describes a beha-iora) decision errorreferred to as Qframing errorQK

7 @-a)uating positi-e information fa-orab)6 andnegati-e information unfa-orab)6

B Cetting )ocDed into )osing courses of actionbecause of persona) commitment

9 @-a)uating the probabi)ities of outcomes as pointestimates instead of ranges

( Becoming o-erconfident because of pastsuccesses

[+8] Source' 9I7 11A II!:Interna) auditors often participate as members ofmanagement tasD force groups Jhich of the fo))owing canbe a )imiting factor associated with group!aided decisionmaDing in a matri organiationK

7 Croups genera))6 do not ana)6e prob)ems inenough depth

B It is -er6 difficu)t to get indi-idua)s to acceptdecisions made b6 groups

9 Identif6ing the important components of decisionsituations becomes etreme)6 difficu)t in a group

setting

( ;here are negati-e ramifications concerningaccountabi)it6 associated with audit decisions made


11/78

b6 groups

[+A] Source' 9I7 &$A$ II!:7uditors must use both inducti-e and deducti-e reasoningwhen gathering audit e-idence and reaching auditconc)usions 7uditors must a)so understand the differencesbetween the two t6pes of reasoning in order to assess thestrengths and weaDnesses of each Jhich of the fo))owingaudit procedures uses deducti-e reasoningK

7 ;he interna) auditor uses genera)ied auditsoftware to se)ect a samp)e of items for confirmationBased on the confirmation responses, the auditorconc)udes that accounts recei-ab)e as recorded eist

B ;he interna) auditor performs ana)6tica)procedures to estimate the accurac6 of the sa)esaccount ba)ance 0o materia) differences are notedBased on this, the auditor assumes that the under)6ingrecord!Deeping must be correct

9 ;he auditor obser-es the c)ient4s ph6sica)in-entor6 process and records test counts ofin-entor6 ;hose test counts are traced to the6ear!end in-entor6 compi)ation and no eceptions arenoted ;he auditor conc)udes that the compi)edin-entor6 eists

( ;he auditor eamines sa)es transactions recordedduring Hanuar6 1AA$ and finds that none of thosesa)es represent 1AA sa)es ;he auditor conc)udesthat 1AA sa)es are recorded proper)6

[8&] Source' 9I7 &$A$ II!125esearch into human performance and auditing indicate thathumans tend to o-eremphasie information that confirmstheir initia) epectations and to discount information that iscontradictor6 to their epectations Jhich of the fo))owingtechniues wou)d not he)p reduce the effect of confirmation

biasK

7 5euire audit re-iew and super-ision to determineif the audit resu)ts =ustif6 the conc)usions reached

B 5euire audit groups to generate a wide set ofpotentia) ep)anations for the pre)iminar6 obser-edresu)ts

9 5eiterate the need for audit independence in a))training

( 5euire auditors to document their thoughtprocesses in reaching conc)usions whene-er asubstantia) amount of e-idence is e-a)uated

[81] Source' 9I7 &$A$ II!%%Interna) auditors are often -er6 good at identif6ingprob)ems that ha-e occurred in an organiationa) unit


12/78

7 7dding a standard marDup to the cost of theproduct

B (etermining the price at which the product wi))earn a target profit

9 Basing prices on the product4s percei-ed -a)ue

( Basing prices on competitors4 prices

[8:] Source' 9I7 11A I.!+A"arDet!sDimming pricing strategies cou)d be appropriatewhen

7 0o bu6ers want the product at a high price

B ;he costs of producing a sma)) -o)ume are )ow

9 9ompetitors can easi)6 enter the marDet

( ;he product is of poor ua)it6

[8+] Source' 9I7 11A$ I.!+$Jhich of the fo))owing price ad=ustment strategies isdesigned to stabi)ie production for the se))ing firmK

7 9ash discounts

B ?uantit6 discounts

9 Functiona) discounts

( Seasona) discounts

[88] Source' 9I7 11A$ I.!+:In which product!mi pricing strateg6 is it appropriate forthe se))er to accept an6 price that eceeds the storage and

de)i-er6 costs for the productK

7 B6!product pricing

B Gptiona)!product pricing

9 9apti-e!product pricing

( Product!bund)e pricing

[A&] Source' 9"7 &:8: $!%&/5efers to Fact Pattern #11;he annua) carr6ing cost, stated as a percentage, that

wou)d be used in the @G? mode) is

7 2>

B %+>

9 %>

( 22>

[A1] Source' 9"7 &:8 $!2$7 change from the FIFG /first!in, first!out in-entor6-a)uation method to the IFG /)ast!in, first!out methodwou)d

7 Increase the @G? in times of rising prices

B (ecrease the @G? in times of rising prices

9 Increase the @G? in times of fa))ing prices

( 0ot affect the @G?

[A2] Source' 9"7 128: $!1&In production management, product breaDdown intocomponent parts and )ead times for procuring these parts isnecessar6 for

7 7 critica) path method /9P" s6stem

B 7 materia)s reuirements p)anning /"5P s6stem

9 7 =ob ba)ancing s6stem

( 7n economic order uantit6 /@G? s6stem

[A%] Source' 9"7 128: $!11;he in-entor6 mode) that fo))ows the concept that 8&> ofthe -a)ue of an in-entor6 is in 2&> of the in-entor6 items isthe

7 7B9 s6stem

B @conomic order uantit6 /@G? mode)

9 Hust!in!time in-entor6 s6stem

( "ateria) reuirements p)anning /"5P s6stem

[A] Source' 9"7 &:88 $!22Jhen a specified )e-e) of safet6 stocD is carried for an itemin in-entor6, the a-erage in-entor6 )e-e) for that item

7 (ecreases b6 the amount of the safet6 stocD

B Is one!ha)f the )e-e) of the safet6 stocD

9 Increases b6 one!ha)f the amount of the safet6stocD

( Increases b6 the amount of the safet6 stocD

[A$] Source' 9"7 &:88 $!2;he simp)e economic production )ot sie mode) wi)) on)6app)6 to situations in which the production

7 5ate eua)s the demand rate

B 5ate is )ess than the demand rate

9 5ate is greater than the demand rate

( For the period co-ered eua)s the pro=ected sa)esfor the period

[A:] Source' 9"7 1288 $!227rno)d @nterprises uses the @G? mode) for in-entor6contro) ;he compan6 has an annua) demand of $&,&&&units for part number 1A1 and has computed an optima) )otsie of :,2$& units Per!unit carr6ing costs and stocDoutcosts are *1% and *%, respecti-e)6 ;he fo))owing dataha-e been gathered in an attempt to determine anappropriate safet6 stocD )e-e)'

Onits Short Because of 0umber of ;imes Short@cess (emand (uring in the ast &the ead ;ime Period 5eorder 96c)es

!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!! 2&& : %&& 12 && :


13/78

;he annua) cost of estab)ishing a 2&&!unit safet6 stocD isepected to be

7 *2,:&&

B *,&&

9 *,2:&

( *$,2&&

[A+] Source' 9"7 12A& !A;he ca)cu)ation of an economic order uantit6 /@G?considers

7 ;he purchasing manager4s sa)ar6

B 7 corporate charge for ad-ertising epenses

9 ;he shipping costs to de)i-er the product to thecustomer

( 9apita) costs

[A8] Source' 9"7 &:A1 !7 decrease in in-entor6 order costs wi))

7 (ecrease the economic order uantit6

B Increase the reorder point

9 of se))ing


14/78

prices, and pa6ment is made at the time of purchase 7nappropriate formu)a for tota) cash pa6ments in Hune formerchandise purchases is

7 11 percent of sa)es in Hu)6

B 11 percent of sa)es in "a6

9 percent of sa)es in Hune 11 percent of sa)esin Hu)6

( percent of sa)es in Hune 11 percent of sa)esin "a6

[Fact Pattern #1%];he


15/78

ordering costs are uncertain

( Shou)d not be used in con=unction withcomputeried perpetua) in-entor6 s6stems

[11%] Source' 9"7 12A !A9anseco @nterprises uses 8,&&& units of Part 2$: inmanufacturing acti-ities o-er a %&&!da6 worD 6ear ;heusua) )ead!time for the part is si da6sT occasiona))6,howe-er, the )ead!time has gone as high as eight da6s ;hecompan6 now desires to ad=ust its safet6 stocD po)ic6 ;heincrease in safet6 stocD sie and the )iDe)6 effect onstocDout costs and carr6ing costs, respecti-e)6, wou)d be

7 $:& units, decrease, increase

B $:& units, decrease, decrease

9 1,:8& units, decrease, increase

( 1,:8& units, increase, no change

[11] Source' 9"7 &:A: !11isted be)ow are a compan64s month)6 unit costs tomanufacture and marDet a particu)ar product

"anufacturing costs'(irect materia)s *2&&(irect )abor 2&.ariab)e indirect 1:&Fied indirect 1&&"arDeting costs'.ariab)e 2$&Fied 1$&;he compan6 must decide to continue maDing the productor bu6 it from an outside supp)ier ;he supp)ier has offeredto maDe the product at the same )e-e) of ua)it6 that thecompan6 can maDe it Fied marDeting costs wou)d beunaffected, but -ariab)e marDeting costs wou)d be reduced

b6 %&> if the compan6 were to accept the proposa) Jhatis the maimum amount per unit that the compan6 can pa6the supp)ier without decreasing operating incomeK

7 *8$&

B *:+$

9 *++$

( *$2$

[11$] Source' 9"7 &:A: !1$In a decision ana)6sis situation, which one of the fo))owingcosts is not )iDe)6 to contain a -ariab)e cost componentK

7 abor

B G-erhead

9 (epreciation

( Se))ing

[11:] Source' 9"7 &:A: !1:In a decision ana)6sis situation, which one of the fo))owingcosts is genera))6 not re)e-ant to the decisionK

7 Incrementa) cost

B (ifferentia) cost

9 7-oidab)e cost

(


16/78

;he term that best refers to past costs that ha-e beenincurred and are not re)e-ant to an6 future decisions is


B Fu)) absorption costs

9 Incurred margina) costs

( SunD costs

[12] Source' 9"7 12A: !%/5efers to Fact Pattern #1$(uring the net 6ear, NB!A: sa)es are epected to be1&,&&& units 7)) of the costs wi)) remain the same eceptthat fied manufacturing o-erhead wi)) increase b6 2&> anddirect materia)s wi)) increase b6 1&> ;he se))ing price perunit for net 6ear wi)) be *1:& Based on this data, thecontribution margin from NB!A: for net 6ear wi)) be

7 *:2&,&&&

B *+$&,&&&

9 *1,&8&,&&&

( *1,11&,&&&

[12$] Source' 9"7 12A: !/5efers to Fact Pattern #1$Nator 9o has recei-ed a specia), one!time, order for1,&&& NB!A: parts 7ssume that Nator is operating at fu))capacit6 and that the contribution margin of the output thatwou)d be disp)aced b6 the specia) order is *1&,&&& ;heminimum price that is acceptab)e, using the origina) data, forthis one!time specia) order is in ecess of

7 *:&

B *+&

9 *8+

( *1&&

[12:] Source' 9"7 12A: !$7n important concept in decision maDing is described asQthe contribution to income that is forgone b6 not using a

)imited resource in its best a)ternati-e useQ ;his concept isca))ed

7 "argina) cost

B Incrementa) cost

9 Potentia) cost

( Gpportunit6 cost

[12+] Source' 9"7 12A: !:Se-era) sur-e6s point out that most managers use fu))product costs, inc)uding unit fied costs and unit -ariab)ecosts, in de-e)oping cost!based pricing Jhich one of thefo))owing is )east associated with cost!based pricingK

7 Price stabi)it6

B Price =ustification

9 ;arget pricing

( Fied!cost reco-er6

[Fact Pattern #1:]Jhiteha)) 9orporation produces chemica)s used in thec)eaning industr6 (uring the pre-ious month, Jhiteha))incurred *%&&,&&& of =oint costs in producing :&,&&& unitsof 7"!12 and &,&&& units of B"!%: Jhiteha)) uses theunits!of!production method to a))ocate =oint costs9urrent)6, 7"!12 is so)d at sp)it!off for *%$& per unitF)anD 9orporation has approached Jhiteha)) to purchasea)) of the production of 7"!12 after further processing;he further processing wi)) cost Jhiteha)) *A&,&&&

[128] Source' 9"7 12A: !+/5efers to Fact Pattern #1:9oncerning 7"!12, which one of the fo))owing a)ternati-esis most ad-antageousK

7 Jhiteha)) shou)d process further and se)) to F)anDif the tota) se))ing price per unit after furtherprocessing is greater than *%&&, which co-ers the=oint costs

B Jhiteha)) shou)d continue to se)) at sp)it!off un)essF)anD offers at )east *$& per unit after furtherprocessing, which co-ers Jhiteha))4s tota) costs

9 Jhiteha)) shou)d process further and se)) to F)anDif the tota) se))ing price per unit after furtherprocessing is greater than *$&&

( Jhiteha)) shou)d process further and se)) to F)anDif the tota) se))ing price per unit after furtherprocessing is greater than *$2$, which maintains thesame gross profit percentage

[12A] Source' 9"7 12A: !8/5efers to Fact Pattern #1:

7ssume that Jhiteha)) 9orporation agreed to se)) 7"!12to F)anD 9orporation for *$$& per unit after furtherprocessing (uring the first month of production, Jhiteha))so)d $&,&&& units with 1&,&&& units remaining in in-entor6at the end of the month Jith respect to 7"!12, whichone of the fo))owing statements is correctK

7 ;he operating profit )ast month was *$&,&&&, andthe in-entor6 -a)ue is *1$,&&&

B ;he operating profit )ast month was *$&,&&&, andthe in-entor6 -a)ue is *$,&&&

9 ;he operating profit )ast month was *12$,&&&,and the in-entor6 -a)ue is *%&,&&&

( ;he operating profit )ast month was *2&&,&&&,and the in-entor6 -a)ue is *%&,&&&

[1%&] Source' 9"7 12A: !22In a maDe!-ersus!bu6 decision, the re)e-ant costs inc)ude-ariab)e manufacturing costs as we)) as

7 Factor6 management costs

B Cenera) office costs

9 7-oidab)e fied costs

( (epreciation costs

[1%1] Source' Pub)isheristed be)ow are a compan64s month)6 unit costs tomanufacture and marDet a particu)ar product


17/78

"anufacturing 9osts' (irect materia)s *&& (irect )abor 8& .ariab)e indirect %2& Fied indirect 2&&"arDeting 9osts' .ariab)e *$&& Fied %&&;he compan6 must decide whether to continue maDing theproduct or to bu6 it from an outside supp)ier ;he supp)ierhas offered to maDe a product of the same ua)it6 as thatmanufactured in!house If the compan6 were to accept theproposa), fied marDeting costs wou)d be unaffected, but-ariab)e marDeting costs wou)d be reduced b6 %&>"oreo-er, if the compan6 outsources the product, thecapacit6 former)6 used for its manufacture wi)) be id)eJhat is the maimum amount per unit that the compan6can pa6 the supp)ier without decreasing its operatingincomeK

7 *1+&&

B *1%$&

9 *1$$&

( *1&$&

[Fact Pattern #1+]Pontotoc Industries manufactures a product that is used asa subcomponent b6 other manufacturers It has thefo))owing price and cost structure'

Se))ing price *%&& 9osts (irect materia)s & (irect )abor %& .ariab)e manufacturing o-erhead 2 Fied manufacturing o-erhead :&

.ariab)e se))ing : Fied se))ing and administrati-e 2& /18& !!!! Gperating margin *12& 3333

[1%2] Source' Pub)isher/5efers to Fact Pattern #1+Pontotoc recei-ed a specia), one!time order for 1,&&& ofthe abo-e parts 7ssuming Pontotoc has ecess capacit6,the minimum unit price for this specia), one!time order is inecess of

7 *18&

B *12&

9 *1&&

( *1:&

[1%%] Source' Pub)isher/5efers to Fact Pattern #1+Pontotoc recei-ed a specia), one!time order for 1,&&& unitsof its product


18/78

[1%8] Source' 9I7 &$A$ III!2A;raditiona))6, )arge manufacturers ha-e be)ie-ed thateconomies of sca)e gained through )arge production runs of)iDe, or simi)ar, products are the best wa6 to Deepproduction costs down and remain competiti-e Se)ect themost appropriate response to whether this theor6 is sti))-a)id

7 es, )arger economies of sca)e continue to accruefrom e-er )arger production runs

B es, )ower!per!unit costs for standard productscontinue to guarantee a competiti-e ad-antage

9 0o, economies of sca)e can no )onger be gainedfrom )ong production runs

( 0o, production f)eibi)it6 and di-ersit6 of productsare needed to remain competiti-e

[1%A] Source' 9"7 Samp ?!27)) of the fo))owing costs are re)e-ant to a decision toaccept or re=ect an order ecept

7 (ifferentia) costs

B Gut!of!pocDet costs

9 5ep)acement costs

( SunD costs

[1&] Source' 9"7 Samp ?!%Po)ar 9ompan6 se))s refrigeration components both in theOS and to a subsidiar6 )ocated in France Gne of thecomponents, Part 0o $:, has a -ariab)e manufacturingcost of *%& ;he part can be so)d domestica))6 or shippedto the French subsidiar6 for use in the manufacture of a

residentia) subassemb)6 5e)e-ant data with regard to Part0o $: are shown be)ow

Part 0o $: !!!!!!!!!!!!(omestic se))ing price * :$Shipping charges to France 1$9ost of acuiring Part 0o $: in France +$French residentia) subassemb)6' Sa)es price 1+& Gther additiona) manufacturing costs $$ Onits shipped to France 1$&,&&&If deemed preferab)e, these units cou)d be so)din the OSPo)ar4s app)icab)e income ta rates are &> in the OS

and +&> in France

Po)ar wi)) transfer Part 0o $: to the French subsidiar6 ateither -ariab)e manufacturing cost or the domestic marDetprice Gn the basis of this information, which one of thefo))owing strategies shou)d be recommended to Po)ar4smanagementK

7 ;ransfer 1$&,&&& units at *%& and the Frenchsubsidiar6 pa6s the shipping costs

B ;ransfer 1$&,&&& units at *:$ and the Frenchsubsidiar6 pa6s the shipping costs

9 Se)) 1$&,&&& units in the OS and the Frenchsubsidiar6 obtains Part 0o $: in France

( ;ransfer 1$&,&&& units at *:$ and ha-e the OScompan6 absorb the shipping costs

[11] Source' 9I7 &$A: I.!+8/5efer to Figures 1 through Jhich one of the graphsdepicts the demand cur-e for prestige goodsK

7 Figure 1

B Figure 2

9 Figure %

( Figure

[12] Source' 9"7 128A $!1:/5efer to Figure $ ;he diagram represents the economicorder uantit6 /@G? mode) Jhich )ine segmentrepresents the reorder )ead timeK

7 7B

B 7@

9 7F

( B9

[1%] Source' 9"7 128A $!1+/5efer to Figure $ ;he diagram represents the economicorder uantit6 /@G? mode) Jhich )ine segment identifiesthe uantit6 of safet6 stocD maintainedK

7 7B

B 7@

9 79

( B9

[1] Source' 9"7 128A $!18/5efer to Figure $ ;he diagram represents the economicorder uantit6 /@G? mode) Jhich )ine segmentrepresents the )ength of time to consume the tota) uantit6of materia)s orderedK

7 (@

B B9

9 79

( 7@

[1$] Source' 9"7 &:A& !2+Jhen a fied p)ant asset with a $!6ear estimated usefu) )ifeis so)d during the second 6ear, how wou)d the use of anacce)erated depreciation method instead of the straight!)inemethod affect the gain or )oss on the sa)e of the fied p)antassetK

Cain oss !!!!!!!! !!!!!!!! 7

Increase Increase B

Increase (ecrease 9

(ecrease Increase (


19/78

(ecrease (ecrease

[1:] Source' Pub)isherJhat is the economic order uantit6 for Hared 7utomoti-eif the6 se)) %,&&& automobi)es per 6ear, at a cost of *+&&per order, and a carr6ing cost of *12$ per automobi)eK

7 1%& automobi)es

B 2 automobi)es

9 18% automobi)es

( 2A: automobi)es

[Fact Pattern #18]"adengrad 9ompan6 manufactures a sing)e e)ectronicproduct ca))ed Precisionmi ;his unit is a batch!densit6monitoring de-ice attached to )arge industria) miingmachines used in f)our, rubber, petro)eum, and chemica)manufacturing Precisionmi se))s for *A&& per unit ;hefo))owing -ariab)e costs are incurred to produce eachPrecisionmi de-ice'

(irect )abor *18&(irect materia)s 2&Factor6 o-erhead 1&$ !!!! ;ota) -ariab)e production costs $2$"arDeting costs +$ !!!! ;ota) -ariab)e costs *:&& 3333"adengrad4s income ta rate is &>, and annua) fiedcosts are *:,:&&,&&& @cept for an operating )ossincurred in the 6ear of incorporation, the firm has beenprofitab)e o-er the )ast $ 6ears

[1+] Source' 9"7 &:A& $!12

/5efers to Fact Pattern #18If "adengrad 9ompan6 achie-es a sa)es and production-o)ume of 8,&&& units, the annua) before!ta income /)osswi)) be

7 */,2&&,&&&

B *1,+8&,&&&

9 */2,$2&,&&&

( */2&,&&&

[18] Source' 9"7 &:A& $!1%/5efers to Fact Pattern #18

;he annua) sa)es -o)ume reuired for "adengrad 9ompan6to breaD e-en is

7 22,&&& units

B 11,&&& units

9 8,&& units

( 1%,888 units

[1A] Source' 9"7 &:A& $!1/5efers to Fact Pattern #18For "adengrad 9ompan6 to achie-e an after!ta netincome of *$&,&&&, annua) sa)es re-enue must be

7 *2%,8$&,&&&

B *22,$&&,&&&

9 *2,+&&,&&&

( *21,2&,&&&

[1$&] Source' 9"7 &:A& $!1$/5efers to Fact Pattern #187ssume a 1&> increase in annua) fied costs, a 2&> unitcost increase for direct )abor, and a reduction in unitmateria) costs of 2$>, with no change in se))ing price 7fterincorporating these changes, "adengrad 9ompan64scontribution margin wou)d be

7 %>

B :A>

9 %:>

( :>

[1$1] Source' 9"7 &:A& $!1:/5efers to Fact Pattern #187ssume a 1&> increase in annua) fied costs, a 2&> unitcost increase for direct )abor, and a reduction in unitmateria) costs of 2$>, with no change in se))ing price"adengrad 9ompan64s breaDe-en point wou)d increase/decrease /rounded to the nearest who)e unit b6

7 %,A:& units

B /1,:2& units

9 1,:& units

( &+ units

[1$%] Source' 9"7 &:A% !2/5efers to Fact Pattern #1A;he maimum after!ta profit that can be earned b6 (e)phi9ompan6 from sa)es of the new product during the netfisca) 6ear is

7 *%&,&&&

B *$&,&&&

9 *11&,&&&

( *::,&&&

[1$] Source' 9"7 &:A% !%/5efers to Fact Pattern #1A(e)phi 9ompan64s management has stipu)ated that it wi))not appro-e the continued manufacture of the new productafter the net fisca) 6ear un)ess the after!ta profit is at )east*+$,&&& the first 6ear ;he unit se))ing price to achie-e thistarget profit must be at )east

7 *%+&&

B *%::&

9 *%:&

( *%A&&

[Fact Pattern #2&](onne))6 9orporation manufactures and se))s ;!shirts


20/78

imprinted with co))ege names and s)ogans ast 6ear, theshirts so)d for *+$& each, and the -ariab)e cost tomanufacture them was *22$ per unit ;he compan6needed to se)) 2&,&&& shirts to breaD e-en ;he net income)ast 6ear was *$,&& (onne))64s epectations for thecoming 6ear inc)ude the fo))owing'

;he sa)es price of the ;!shirts wi)) be *A .ariab)e cost to manufacture wi)) increase b6 one!third Fied costs wi)) increase b6 1&> ;he income ta rate of &> wi)) be unchanged

[1$$] Source' 9"7 &:8+ !1&/5efers to Fact Pattern #2&;he se))ing price that wou)d maintain the same contributionmargin rate as )ast 6ear is

7 *A&&

B *82$

9 *1&&&


[1$:] Source' 9"7 &:8+ !11/5efers to Fact Pattern #2&;he number of ;!shirts (onne))6 9orporation must se)) tobreaD e-en in the coming 6ear is

7 1+,$&&

B 1A,2$&

9 2&,&&&


[1$+] Source' 9"7 &:8+ !12/5efers to Fact Pattern #2&Sa)es for the coming 6ear are epected to eceed )ast6ear4s b6 1,&&& units If this occurs, (onne))64s sa)es-o)ume in the coming 6ear wi)) be

7 22,:&& units

B 21,A:& units

9 2%,&& units


[1$8] Source' 9"7 &:8+ !1%/5efers to Fact Pattern #2&

If (onne))6 9orporation wishes to earn *22,$&& in netincome for the coming 6ear, the compan64s sa)es -o)ume indo))ars must be

7 *21%,+$&

B *2$+,:2$

9 *22A,$&&


[1$A] Source' HB 5oma).on Stutgatt Internationa)4s breaDe-en point is 8,&&& racingbic6c)es and 12,&&& $!speed bic6c)es If the se))ing price

and -ariab)e costs are *$+& and *2&& for a racer, and*18& and *A& for a $!speed respecti-e)6, what is theweighted!a-erage contribution marginK

7 *1&&

B *1$

9 *1+A

( *2&2

[Fact Pattern #21]7 compan6 se))s two products, M and ;he sa)es miconsists of a composite unit of 2 units of M for e-er6 $ unitsof /2'$ Fied costs are *A,$&& ;he unit contributionmargins for M and are *2$& and *12&, respecti-e)6

[1:&] Source' 9I7 &$8: I.!8/5efers to Fact Pattern #219onsidering the compan6 as a who)e, the number ofcomposite units to breaD e-en is

7 1,:$&

B ,$&&

9 8,2$&

( 22,$&&

[1:1] Source' 9I7 &$8: I.!A/5efers to Fact Pattern #21If the compan6 had a profit of *22,&&&, the unit sa)es mustha-e been

Product M Product !!!!!!!!! !!!!!!!!! 7

$,&&& 12,$&& B

1%,&&& %2,$&& 9

2%,8&& $A,$&& (

%2,$&& 1%,&&&

[1:2] Source' Pub)isher7 manufacturing concern se))s its so)e product for *1& perunit, with a unit contribution margin of *: ;he fied

manufacturing cost rate per unit is *2 based on adenominator capacit6 of 1 mi))ion units, and fied marDetingcosts are *1$ mi))ion If A&&,&&& units are produced, the

absorption!costing breaDe-en point in units so)d is

7 2$,&&& units

B $8%,%%% units

9 A&&,&&& units

( 1,&&&,&&& units

[1:%] Source' Pub)isher7 not!for!profit socia) agenc6 pro-ides home hea)th careassistance to as man6 patients as possib)e Its budgetedappropriation /M for net 6ear must co-er fied costs of*$ mi))ion, and the annua) per!patient cost / of its

ser-ices reduction in its appropriation that wi)) )ower thenumber of patients ser-ed from $,&&& to ,&&& ;hereduced appropriation and the annua) per!patient cost eua)


21/78

5educed Per!Patient 7ppropriation 7nnua) 9ost !!!!!!!!!!!!! !!!!!!!!!!! 7

*$,&&&,&&& *,&&& B

*8,%%%,%%% *8%% 9

*A,&&&,&&& *1,&&& (

*1&,&&&,&&& *$,&&&

[1:] Source' 9I7 &$A% I.!117 compan6 has sa)es of *$&&,&&&, -ariab)e costs of*%&&,&&&, and preta profit of *1$&,&&& If the compan6increased the sa)es price per unit b6 1&>, reduced fiedcosts b6 2&>, and )eft -ariab)e cost per unit unchanged,what wou)d be the new breaDe-en point in sa)es do))arsK

7 *88,&&&

B *1&&,&&&

9 *11&,&&&

( *12$,&&&

[1:$] Source' 9I7 &$A% I.!1+7 compan6 with *28&,&&& of fied costs has the fo))owingdata'

Product 7 Product B !!!!!!!!! !!!!!!!!!Sa)es price per unit *$ *:

.ariab)e costs per unit *% *$7ssume three units of 7 are so)d for each unit of B so)d


22/78

7 Cross margin per unit for each additiona) unit so)d

B 9ontribution margin per unit for each additiona)unit so)d

9 Fied costs per unit for each additiona) unit so)d

( .ariab)e costs per unit for each additiona) unitso)d

[1+1] Source' 9"7 &:8+ !1For a profitab)e compan6, the amount b6 which sa)es candec)ine before )osses occur is Dnown as the

7 Sa)es -o)ume -ariance

B


23/78

of cross!countr6 sDis of the mountaineering mode) or thetouring mode) ;he Sa)es (epartment assures managementthat it can se)) between A,&&& pairs and 1%,&&& pairs ofeither product this 6ear Because the mode)s are -er6simi)ar, Siberian SDi wi)) produce on)6 one of the twomode)s

;he fo))owing information was compi)ed b6 the 7ccounting(epartment Per Onit /Pair (ata !!!!!!!!!!!!!!!!!!!! "ountaineering ;ouring !!!!!!!!!!!!!! !!!!!!!Se))ing price *88&& *8&&&.ariab)e costs $28& $28&Fied costs wi)) tota) *%:A,:&& if the mountaineering mode)is produced but wi)) be on)6 *%1:,8&& if the touring mode)is produced Siberian SDi is sub=ect to a &> income tarate

[1+A] Source' 9"7 12A1 !1%/5efers to Fact Pattern #2%If Siberian SDi 9ompan6 desires an after!ta net income of*2,&&&, how man6 pairs of touring mode) sDis wi)) thecompan6 ha-e to se))K

7 1%,118 pairs

B 12,$2A pairs

9 1%,8$% pairs

( ,:& pairs

[18&] Source' 9"7 12A1 !1/5efers to Fact Pattern #2%;he tota) sa)es re-enue at which Siberian SDi 9ompan6wou)d maDe the same profit or )oss regard)ess of the sDimode) it decided to produce is

7 *88&,&&&

B *22,&&

9 *A2,&&&

( *:8:,&&

[181] Source' 9"7 12A1 !1$/5efers to Fact Pattern #2%If the Siberian SDi 9ompan6 Sa)es (epartment cou)dguarantee the annua) sa)e of 12,&&& pairs of either mode),Siberian SDi wou)d

7 Produce 12,&&& pairs of touring sDis because the6

ha-e a )ower fied cost

B Be indifferent as to which mode) is so)d becauseeach mode) has the same -ariab)e cost per unit

9 Produce 12,&&& pairs of mountaineering sDisbecause the6 ha-e a )ower breaDe-en point

( Produce 12,&&& pairs of mountaineering sDisbecause the6 are more profitab)e

[Fact Pattern #2]Brue)) @)ectronics 9o is de-e)oping a new product, surgeprotectors for high!-o)tage e)ectrica) f)ows ;he fo))owing

cost information re)ates to the product'

Onit 9osts !!!!!!!!!!

(irect materia)s *%2$(irect )abor &&(istribution +$;he compan6 wi)) a)so be absorbing *12&,&&& ofadditiona) fied costs associated with this new product 7corporate fied charge of *2&,&&& current)6 absorbed b6other products wi)) be a))ocated to this new product

[182] Source' 9"7 &:A !28/5efers to Fact Pattern #2If the se))ing price is *1 per unit, the breaDe-en point inunits /rounded to the nearest hundred for surge protectorsis

7 8,$&& units

B 1&,&&& units

9 1$,&&& units

( 2&,&&& units

[18%] Source' 9"7 &:A !2A/5efers to Fact Pattern #2 income

ta rate, had the fo))owing operating data for the period =ustended

Se))ing price per unit * :& .ariab)e cost per unit 22 Fied costs $&,&&&"anagement p)ans to impro-e the ua)it6 of its so)eproduct b6 /1 rep)acing a component that costs *%$&with a higher!grade unit that costs *$$&, and /2 acuiringa *18&,&&& pacDing machine 7ustin wi)) depreciate themachine o-er a 1&!6ear )ife with no estimated sa)-age -a)ueb6 the straight!)ine method of depreciation If the compan6wants to earn after!ta income of *1+2,8&& in theupcoming period, it must se))

7 1A,%&& units

B 21,%1: units

9 22,$&& units


24/78

( 2%,8&& units

[Fact Pattern #2$]"u)tiFrame 9ompan6 has the fo))owing re-enue and costbudgets for the two products it se))s

P)astic C)ass Frames Frames !!!!!!!! !!!!!!!!Budgeted unit sa)es 1&&,&&& %&&,&&&Sa)es price *1&&& *1$&&(irect materia)s /2&& /%&&(irect )abor /%&& /$&&Fied o-erhead /%&& /&& !!!!!!!! !!!!!!!!0et income per unit *2&& *%&& 33333333 33333333;he budgeted unit sa)es eua) the current unit demand, andtota) fied o-erhead for the 6ear is budgeted at *A+$,&&&7ssume that the compan6 p)ans to maintain the sameproportiona) mi In numerica) ca)cu)ations, "u)tiFramerounds to the nearest cent and unit

[18:] Source' 9"7 12A& !/5efers to Fact Pattern #2$;he tota) number of units "u)tiFrame needs to produceand se)) to breaD e-en is

7 1$&,&&& units

B %$,$$ units

9 1++,2+% units

( %&&,&&& units

[18+] Source' 9"7 12A& !$/5efers to Fact Pattern #2$

;he tota) number of units needed to breaD e-en if thebudgeted direct )abor costs were *2 for p)astic framesinstead of *% is

7 1$,&28 units

B 1, units

9 1$:,&&& units

( 1:,1++ units

[188] Source' 9"7 12A& !:/5efers to Fact Pattern #2$;he tota) number of units needed to breaD e-en if sa)es

were budgeted at 1$&,&&& units of p)astic frames and%&&,&&& units of g)ass frames with a)) other costs remainingconstant is

7 1+1,A$8 units

B 18,$$ units

9 1$%,A+ units

( %:$,1:8 units

[18A] Source' 9"7 &:A2 !22"ason @nterprises has prepared the fo))owing budget forthe month of Hu)6

Se))ing Price .ariab)e 9ost Onit Per Onit Per Onit Sa)es !!!!!!!!!!!!! !!!!!!!!!!!!! !!!!!!

Product 7 *1&&& *&& 1$,&&&Product B 1$&& 8&& 2&,&&&Product 9 18&& A&& $,&&&7ssuming that tota) fied costs wi)) be *1$&,&&& and themi remains constant, the breaDe-en point /rounded to thenet higher who)e unit wi)) be

7 2&,$$ units

B 21,2A units

9 21,81A units

( :,818 units

[1A1] Source' 9"7 &:A2 !%&/5efers to Fact Pattern #2:For the coming 6ear, the management of Barnes9orporation anticipates a 1&> increase in sa)es, a 12>increase in -ariab)e costs, and a *$,&&& increase in fiedepenses ;he breaDe-en point for net 6ear wi)) be

7 *+2A,&2+

B *8:2,1&%

9 *21,&18

( *+,&&&

[1A2] Source' 9"7 12A !;he fo))owing information re)ates to 9)6de 9orporation,which produced and so)d $&,&&& units during a recentaccounting period

Sa)es *8$&,&&&"anufacturing costs

Fied 21&,&&& .ariab)e 1&,&&&Se))ing and administrati-e costs Fied %&&,&&& .ariab)e $,&&&Income ta rate &>For the net accounting period, if production and sa)es areepected to be &,&&& units, the compan6 shou)danticipate a contribution margin per unit of

7 *18:

B *%1&

9 *+%&

( *1%%&

[1A%] Source' 9"7 &:+A $!1%B@< "anufacturing is considering dropping a product)ine It current)6 produces a mu)ti!purpose woodworDingc)amp in a simp)e manufacturing process that uses specia)euipment .ariab)e costs amount to *:&& per unit Fiedo-erhead costs, ec)usi-e of depreciation, ha-e beena))ocated to this product at a rate of *%$& a unit and wi))continue whether or not production ceases (epreciationon the specia) euipment amounts to *2&,&&& a 6ear Ifproduction of the c)amp is stopped, the specia) euipmentcan be so)d for *18,&&&T if production continues, howe-er,the euipment wi)) be use)ess for further production at theend of 1 6ear and wi)) ha-e no sa)-age -a)ue ;he c)amp

has a se))ing price of *1& a unit Ignoring ta effects, theminimum number of units that wou)d ha-e to be so)d in thecurrent 6ear to breaD e-en on a cash f)ow basis is


25/78

7 ,$&&

B $,&&&

9 2&,&&&

( %:,&&&

[1A] Source' 9H SDender;on6Dinn 9ompan6 is contemp)ating marDeting a newproduct Fied costs wi)) be *8&&,&&& for production of+$,&&& units or )ess and *1,2&&,&&& if production eceeds+$,&&& units ;he -ariab)e cost ratio is :&> for the first+$,&&& units ;ota) -ariab)e costs wi)) decrease to $&> forunits in ecess of +$,&&& If the product is epected to se))for *2$ per unit, how man6 units must ;on6Dinn se)) tobreaD e-enK

7 12&,&&&

B 111,&&&

9 A:,&&&

( 8&,&&&

[1A$] Source' 9I7 11A: III!A&;wo companies produce and se)) the same product in acompetiti-e industr6 ;hus, the se))ing price of the productfor each compan6 is the same 9ompan6 1 has acontribution margin ratio of &> and fied costs of *2$mi))ion 9ompan6 2 is more automated, maDing its fiedcosts &> higher than those of 9ompan6 1 9ompan6 2a)so has a contribution margin ratio that is %&> greater thanthat of 9ompan6 1 B6 comparison, 9ompan6 1 wi)) ha-ethe Uist 7V breaDe-en point in terms of do))ar sa)es-o)ume and wi)) ha-e the Uist BV do))ar profit potentia)once the indifference point in do))ar sa)es -o)ume iseceeded

ist 7 ist B !!!!!! !!!!!!! 7 ower esser

B ower Creater

9 before!ta return on sa)es wou)d be

.ariab)e costs per unit' (irect materia) * $&& (irect )abor && "anufacturing o-erhead :&& Se))ing and administrati-e coats %&& !!!!!!;ota) -ariab)e costs per unit *18&& 3333337nnua) fied operating costs' "anufacturing o-erhead *:,2&&,&&& Se))ing and administrati-e costs %,+&&,&&&

!!!!!!!!!!;ota) annua) fied costs *A,A&&,&&& 3333333333 7 %%+,$&& units

B %:,8+$ units

9 2$,&&& units

( +8,12$ units

[Fact Pattern #28];ota) production costs of prior periods for a compan6 are)isted as fo))ows 7ssume that the same cost beha-ior

patterns can be etended )inear)6 o-er the range of %,&&&to %$,&&& units and that the cost dri-er for each cost is thenumber of units produced


26/78

Productionin unitsper month %,&&& A,&&& 1:,&&& %$,&&&!!!!!!!!!! !!!!!!! !!!!!!! !!!!!!! !!!!!!!!9ost M *2%,+&& *$2,:8& *8:,A& *1+8,2:&9ost +,28& 11,8& 2$2,1:& $$1,:&&

[1AA] Source' 9I7 &$A III!AA/5efers to Fact Pattern #28Jhat is the a-erage cost per unit at a production )e-e) of8,&&& units for cost MK

7 *$A8

B *$8$

9 *+A&

( *8%

[2&&] Source' 9I7 1188 I.!1:Positi-e net income is shown on a cost!-o)ume!profit chartwhen the

7 ;ota) -ariab)e epense )ine eceeds the tota) fiedepense )ine

B ;ota) epense )ine eceeds the tota) sa)es re-enue)ine

9 ;ota) sa)es re-enue )ine eceeds the tota) fiedepense )ine

( ;ota) sa)es re-enue )ine eceeds the tota) epense)ine

[2&1] Source' 9I7 &$82 I.!2%7 compan64s breaDe-en point in sa)es do))ars ma6 beaffected b6 eua) percentage increases in both se))ing price

and -ariab)e cost per unit /assume a)) other factors areconstant within the re)e-ant range ;he eua) percentagechanges in se))ing price and -ariab)e cost per unit wi)) causethe breaDe-en point in sa)es do))ars to

7 (ecrease b6 )ess than the percentage increase inse))ing price

B (ecrease b6 more than the percentage increase inthe se))ing price

9 Increase b6 the percentage change in -ariab)e costper unit

( 5emain unchanged

[2&2] Source' 9"7 12+% !Jhich of the fo))owing wou)d decrease unit contributionmargin the mostK

7 7 1$> decrease in se))ing price

B 7 1$> increase in -ariab)e epenses

9 7 1$> decrease in -ariab)e epenses

( 7 1$> decrease in fied epenses

[2&%] Source' 9I7 &$++ I.!11Jhich of the fo))owing wi)) resu)t in raising the breaDe-en

pointK

7 7 decrease in the -ariab)e cost per unit

B 7n increase in the semi-ariab)e cost per unit

9 7n increase in the contribution margin per unit

( 7 decrease in income ta rates

[2&] Source' Pub)isher7 compan6 wants to open a new store in one of twonearb6 shopping ma))s In "a)) 7, the rent wi)) be*2$&,&&& per 6ear In "a)) B, the rent wi)) be > of grossre-enues 7ssuming that re-enues and a)) other e)ementsunder consideration are the same for both ma))s, at what)e-e) of re-enues wi)) the compan6 be indifferent betweenthe two ma))sK

7 *1,&&&,&&&

B *,&&&,&&&

9 *:,2$&,&&&

( *12,$&&,&&&

[2&$] Source' 9I7 &$8% I.!$7 compan6 a))ocates its -ariab)e factor6 o-erhead basedon direct )abor hours (uring the past % months, the actua)direct )abor hours and the tota) factor6 o-erhead a))ocatedwere as fo))ows'

Hanuar6 Februar6 "arch !!!!!!! !!!!!!!! !!!!!!!!(irect )abor hours 1,&&& %,&&& $,&&&;ota) factor6 o-erhead a))ocated *8&,&&& *1&,&&&*2&&,&&&Based upon this information, month)6 fied factor6o-erhead was

7 *$&,&&&

B *:,::+

9 *%%,%%%

( *%&,&&&

[2&:] Source' 9I7 &$8$ I.!:Creen 9ompan6 produces Product 7 and se))s it for*18&& ;he fo))owing cost data app)6'

;6pe of 9ost Per Onit!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!(irect materia)s /% )b *1$& *$&(irect )abor :$.ariab)e o-erhead 1%$

Fied o-erhead 1$&.ariab)e se))ing epense 11&Fied se))ing epense 22& !!!!!! *1+1& 333333Creen has thought of marDeting a new Product B with thesame cost structure as Product 7 ecept that the price wi))be *1$:& Creen 9ompan6 current)6 has the p)antcapacit6 necessar6 for this epansion Because of the coststructure, Creen 9ompan6 wi)) find the production and sa)eof Product B in the short run to be

7 0ot profitab)e un)ess the price can be raised to*1+1&

B 0ot profitab)e at an6 price

9 0ot profitab)e at *1$:& because the fied se))ingepense and fied manufacturing o-erhead wi)) not be


27/78

co-ered b6 the price

( Profitab)e to produce and se)) Product B in theshort run at the price of *1$:&

[Fact Pattern #2A]7 compan6 produced the fo))owing data /rounded on itsproduct'

Onit 9ost 0umber of !!!!!!!!!!!!!!!!!!!!!! "argina) "argina)Onits Produced Fied .ariab)e ;ota) 9ost 5e-enue!!!!!!!!!!!!!! !!!!! !!!!!!!! !!!!! !!!!!!!! !!!!!!!! 1 1&& 8$ 18$ 8$ A& 2 $& +& 12& $$ A& % %% :$ A8 $$ A& 2$ :+ A2 +% A& $ 2& +$ A$ 1&+ A&

[2&+] Source' 9I7 118% I.!2%/5efers to Fact Pattern #2A Based on the 6ear 2 budget and the new information,the predicted 6ear 2 net income wou)d be

7 *%&&,&&&

B *%%&,&&&

9 *2&,&&&

( *$8$,&&&

[21&] Source' 9I7 118: I.!1&7 compan6 has =ust comp)eted the fina) de-e)opment of itson)6 product, genera) recombinant bacteria, which can beprogrammed to Di)) most insects before d6ing themse)-es;he product has taDen % 6ears and *:,&&&,&&& to de-e)op;he fo))owing costs are epected to be incurred on amonth)6 basis for the norma) production )e-e) of 1,&&&,&&&pounds of the new product'

1,&&&,&&& pounds !!!!!!!!!!!!!!!!(irect materia)s * %&&,&&&(irect )abor 1,2$&,&&&.ariab)e factor6 o-erhead $&,&&&Fied factor6 o-erhead 2,&&&,&&&.ariab)e se))ing, genera), and adm epenses A&&,&&&Fied se))ing, genera), and adm epenses 1,$&&,&&& !!!!!!!!!!;ota) *:,&&,&&& 33333333337t a sa)es price of *$A& per pound, the sa)es in poundsnecessar6 to ensure a *%,&&&,&&& profit the first 6earwou)d be /to the nearest thousand pounds

7 1%,&1+,&&& pounds

B 1,&&&,&&& pounds

9 1$,&&&,&&& pounds

( 2$,:&&,&&& pounds

[Fact Pattern #%&]"oorehead "anufacturing 9ompan6 produces twoproducts for which the fo))owing data ha-e been tabu)atedFied manufacturing cost is app)ied at a rate of *1&& permachine hour

Per Onit M!+ B(!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!! !!!!!Se))ing price *&& *%&&

.ariab)e manufacturing cost *2&& *1$&Fied manufacturing cost * +$ * 2&.ariab)e se))ing cost *1&& *1&&;he sa)es manager has had a *1:&,&&& increase in thebudget a))otment for ad-ertising and wants to app)6 themone6 to the most profitab)e product ;he products are notsubstitutes for one another in the e6es of the compan64scustomers

[211] Source' 9"7 &:+A $!2$/5efers to Fact Pattern #%&Suppose the sa)es manager chooses to de-ote the entire*1:&,&&& to increased ad-ertising for M!+ ;he minimumincrease in sa)es units of M!+ reuired to offset theincreased ad-ertising is

7 :&,&&& units

B 1:&,&&& units


28/78

9 128,&&& units

( 8&,&&& units

[212] Source' 9"7 &:+A $!2:/5efers to Fact Pattern #%&Suppose the sa)es manager chooses to de-ote the entire*1:&,&&& to increased ad-ertising for B(! ;he minimumincrease in sa)es do))ars of B(! reuired to offset theincreased ad-ertising wou)d be

7 *1:&,&&&

B *%2&,&&&

9 *A:&,&&&

( *1,:&&,&&&

[21%] Source' 9"7 &:+A $!2+/5efers to Fact Pattern #%&Suppose "oorehead has on)6 1&&,&&& machine hours thatcan be made a-ai)ab)e to produce additiona) units of M!+and B(! If the potentia) increase in sa)es units for eitherproduct resu)ting from ad-ertising is far in ecess of thisproduction capacit6, which product shou)d be ad-ertisedand what is the estimated increase in contribution marginearnedK

7 Product M!+ shou)d be produced, 6ie)ding acontribution margin of *+$,&&&

B Product M!+ shou)d be produced, 6ie)ding acontribution margin of *1%%,%%%

9 Product B(! shou)d be produced, 6ie)ding acontribution margin of *18+,$&&

( Product B(! shou)d be produced, 6ie)ding acontribution margin of *2$&,&&&

[21] Source' 9I7 118A I.!$;he percentage change in earnings before interest andtaesassociated with the percentage change in sa)es -o)ume isthe degree of

7 Gperating )e-erage

B Financia) )e-erage

9 BreaDe-en )e-erage

( 9ombined )e-erage

[21$] Source' 9"7 &:A$ 1!17 higher degree of operating )e-erage compared with theindustr6 a-erage imp)ies that the firm

7


29/78

[22&] Source' 9I7 118 I.!%;wo companies are epected to ha-e annua) sa)es of1,&&&,&&& decDs of p)a6ing cards net 6ear @stimates fornet 6ear are presented be)ow'

9ompan6 1 9ompan6 2 !!!!!!!!! !!!!!!!!!Se))ing price per decD *%&& *%&&9ost of paper per decD :2 :$Printing inD per decD 1% 1$abor per decD +$ 12$.ariab)e o-erhead per decD %& %$Fied costs *A:&,&&& *2$2,&&&Ci-en these data, which of the fo))owing responses iscorrectK

.o)ume in Onits BreaDe-en BreaDe-en at Jhich Profits Point in Point in of 9ompan6 1 Onits for Onits for and 9ompan6 2 9ompan6 1 9ompan6 2 7re @ua) !!!!!!!!! !!!!!!!!! !!!!!!!!!!!!!!!!! 7

8&&,&&& 2&,&&& 1,18&,&&& B

8&&,&&& 2&,&&& 1,&&&,&&& 9

$%%,%% 1&$,&&& 1,&&&,&&& (

$%%,%% 1&$,&&& 1,18&,&&&

[221] Source' 9"7 &:8+ 1!2+6man 9ompan6 has the opportunit6 to increase annua)sa)es *1&&,&&& b6 se))ing to a new, risDier group ofcustomers ;he unco))ectib)e epense is epected to be1$>, and co))ection costs wi)) be $> ;he compan64s

manufacturing and se))ing epenses are +&> of sa)es, and

its effecti-e ta rate is &> If 6man shou)d accept thisopportunit6, the compan64s after!ta profits wou)d increaseb6

7 *:,&&&

B *1&,&&&

9 *1&,2&&

( *1,&&

[222] Source' 9I7 &$+8 I.!18

7n organiation4s sa)es re-enue is epected to be *+2,:&&,a 1&> increase o-er )ast 6ear For the same period, tota)fied costs of *22,&&& are epected to be the same as )ast6ear If the number of units so)d is epected to increase b61,1&&, the margina) re-enue per unit wi)) be

7 *

B *:

9 *2&

( *:

[22%] Source' 7 Ji)son

;he 9hi)ders 9ompan6 se))s widgets ;he compan6 breaDse-en at an annua) sa)es -o)ume of +$,&&& units 7ctua)annua) sa)es -o)ume was 1&&,&&& units, and the compan6reported a profit of *2&&,&&& ;he annua) fied costs for

the 9hi)ders 9ompan6 are

7 *8&&,&&&

B *:&&,&&&

9 *+$,&&&

( Insufficient information to determine amount offied costs

[22] Source' 9I7 118$ I.!A7 manufacturer produces a product that se))s for *1& perunit .ariab)e costs per unit are *: and tota) fied costs are*12,&&& 7t this se))ing price, the compan6 earns a profiteua) to 1&> of tota) do))ar sa)es B6 reducing its se))ingprice to *A per unit, the manufacturer can increase its unitsa)es -o)ume b6 2$> 7ssume that there are no taes andthat tota) fied costs and -ariab)e costs per unit remainunchanged If the se))ing price were reduced to *A per unit,the profit wou)d be

7 *%,&&&

B *,&&&

9 *$,&&&

( *:,&&&

[Fact Pattern #%2]7 compan6 has sa)es of one of its products of *&&,&&&per 6ear and a contribution margin ratio of 2&> Its marginof safet6 is *&,&&&

[22$] Source' Pub)isher/5efers to Fact Pattern #%2Jhat is the compan64s breaDe-en pointK

7 *%:&,&&&

B *%2&,&&&

9 *288,&&&

( *8&,&&&

[22:] Source' Pub)isher/5efers to Fact Pattern #%2Jhat are the compan64s fied costsK

7 *+2,&&&

B *8&,&&&

9 *288,&&&

( *%2&,&&&

[Fact Pattern #%%]For one of its di-isions, Buona Fortuna 9ompan6 has fiedcosts of *%&&,&&& and a -ariab)e!cost percentage eua) to:&> of its *1& per unit se))ing price It wou)d )iDe to earn apre!ta income of *A&,&&& per 6ear from the di-ision

[22+] Source' Pub)isher/5efers to Fact Pattern #%%Jhat is the breaDe-en point in do))arsK

7 *%&&,&&&

B *$&&,&&&


30/78

9 *+$&,&&&

( *1,&$&,&&&

[228] Source' Pub)isher/5efers to Fact Pattern #%% of its *1& per unit se))ing priceProduct has a -ariab)e cost percentage eua) to +&> ofits *%& se))ing price For the past se-era) 6ears, sa)es ofProduct M ha-e a-eraged :: > of the sa)es of Product ;hat ratio is not epected to change

[22A] Source' Pub)isher/5efers to Fact Pattern #%Jhat is 9atfur4s breaDe-en point in do))arsK

7 *%&&,&&&

B *+$&,&&&

9 *8$+,12

( *A2,8$+

[2%&] Source' Pub)isher/5efers to Fact Pattern #% return on sa)esK

7 *+2&

B *+$&

9 *1,&8&

( *%,&&&

[Fact Pattern #%$]Pontotoc Industries manufactures a product that is used asa subcomponent b6 other manufacturers It has thefo))owing price and cost structure'

Se))ing price *%&&9osts (irect materia)s *& (irect )abor %& .ariab)e manufacturing o-erhead 2 Fied manufacturing o-erhead :& .ariab)e se))ing : Fied se))ing and administrati-e 2& /18& !! !!!!Gperating margin *12& 3333

[2%%] Source' Pub)isher/5efers to Fact Pattern #%$Jhat wi)) the contribution margin per unit be if thecompan6 se))s 1&,&&& unitsK

7 *2&:

B *2&&

9 *1&

( *12&

[2%] Source' Pub)isher

/5efers to Fact Pattern #%$(uring the net 6ear, sa)es are epected to be 1&,&&&units 7)) costs wi)) remain the same ecept for fiedmanufacturing o-erhead, which wi)) increase 2&>, anddirect materia)s, which wi)) increase 1&> ;he se))ing priceper unit for net 6ear wi)) be *%2& Based on thisinformation, Pontotoc4s contribution margin for net 6earwi)) be

7 *1,2&,&&&

B *1,%:&,&&&

9 *2,1:&,&&&

( *2,2&&,&&&

[Fact Pattern #%:]7 compan6 wants to open a new store in one of threenearb6 shopping ma))s In "a)) 7, the rent wi)) be*%&&,&&& per 6ear In "a)) B, the rent wi)) be > of grossre-enues In "a)) 9, the rent wi)) be *1$&,&&& per 6earp)us %> of gross re-enues 7ssume that re-enues and a))other e)ements under consideration are the same for a))three ma))s

[2%$] Source' Pub)isher/5efers to Fact Pattern #%:Jhich ma)) shou)d the compan6 choose if re-enues areepected to be *:,&&&,&&& per 6earK

7 "a)) 7

B "a)) B


31/78

9 "a)) 9

( ;he co

63931187 decision theory and operation decision analysis

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