Multiple Choice Information Relevant In Business Decision

Multiple Choice1information Is Relevant In Business Decisions If It I

Multiple Choice1information Is Relevant In Business Decisions If It I

Multiple Choice 1. Information is relevant in business decisions if it is a(n) ________. A) expected future revenue or it differs among alternatives B) expected future revenue and it differs among alternatives C) past revenue and it differs among alternatives D) expected future revenue that differs from past revenue 2. What are the qualitative aspects of an accounting decision around accepting a special order? A) those which are not relevant to a decision B) those with a concrete dollar amount C) those for which measurement in dollars and cents is difficult and imprecise D) those which are always relevant to a decision 3. Incremental benefits are the ________ generated by a proposed alternative. A) reduced revenues B) additional costs C) additional profits D) additional revenues or reduced costs 4. The key to determining the financial difference between two alternative courses of action is to identify the ________. A) opportunity cost of each alternative B) marginal cost C) differential costs and revenues D) joint cost of both alternatives 5. The term opportunity cost applies to a resource that a company ________. A) is thinking about purchasing B) already owns only C) has committed to purchase only D) gives up or loses when a certain alternative is accepted. 6. The salary foregone by a person who quits a job to start a business is an example of a(n) ________. A) sunk cost B) opportunity cost C) depreciable cost D) outlay cost 7. Sue is considering leaving her current position to open a coffee shop. Sue's current annual salary is $83,000. Annual coffee shop revenue and costs are estimated at $260,000 and $210,000, respectively. What is Sue's opportunity cost of staying at her current work position? A) $50,000 B) $83,000 C) $210,000 D) $343,. In a make-or-buy decision for a part for a product, which of the following qualitative factors play a role? A) quality of purchased part B) credit terms offered by supplier of part C) timeliness of delivery of purchased part by supplier D) all of the above 9. In make-or-buy decisions for a part for a product, relevant costs include ________. A) some variable costs of making the part B) all variable costs of making the part C) fixed costs that can be avoided in the future if the part is purchased D) B and C 10. Fixed overhead costs that will continue regardless of a make-or-buy decision are ________ to the make-or-buy decision. A) relevant B) irrelevant C) opportunity costs D) incremental costs 11. If a department in a department store is eliminated, ________ costs will not continue. A) unavoidable B) common C) corporate D) avoidable 12. When deciding whether to add or delete a department, managers should keep the department as long as ________ from the department exceeds ________. A) contribution margin; variable costs B) contribution margin; common costs C) contribution margin; net income D) contribution margin; fixed costs 13. In deciding whether to add or delete a product, the insurance expense associated with the custom-built equipment used to produce the product is an ________ cost. Assume the equipment will be sold if the company discontinues the product. A) avoidable fixed B) avoidable variable C) unavoidable fixed D) unavoidable variable 14. In deciding whether to add or delete a product, the salary of the plant manager is an ________. Assume the plant manager supervised the production of several products. A) avoidable fixed cost B) avoidable variable cost C) unavoidable fixed cost D) unavoidable variable cost 15. In evaluating a special order which of the following should be a major factor on whether to accept or reject the order? A) depreciation B) the sales budget C) existing customers finding out D) Mixed costs 1. Bonneville Company is producing a subassembly used in the production of a product. The costs incurred for the subassembly follow: Per Unit Direct materials $6.00 Direct labor 4.00 Variable factory overhead 1.00 Fixed supervisor salary 3.00 Depreciation expense on factory equipment 2.00 General fixed factory overhead allocated 5.00 Total costs $21.00 The above per unit costs are based on 8,000 units. An outside supplier will provide 8,000 subassemblies for $19 per unit which at first glance looks like a $2 per unit savings. The supervisor will be terminated if the subassemblies are not produced in house as that position will no longer be needed. The idle factory will be used to manufacture another product which will bring in $60,000. What should Bonneville do? 2. Central Industries has three product lines: A, B and C. The following information is available: Product A Product B Product C Sales $100,000 $90,000 $44,000 Variable costs 76,,,000 Contribution margin 24,000 42,000 9,000 Avoidable fixed costs 9,000 18,000 3,000 Unavoidable fixed costs 6,,,700 Operating income(loss) $9,000 $15,000 $(1,700) Central Industries is thinking about dropping Product C because it is reporting a loss. Assume Central Industries drops Product C and does not replace it. What will happen to operating income? Would your answer change if all fixed costs were avoidable? 3. Donald Company has the following information: Cash Balance, May 31 $45,000 Dividends paid in June 12,000 Cash paid for operating expenses in June 36,800 Equipment depreciation expense in June 4,500 Patent amortization expense in June 2,000 Cash collections on sales in June 99,000 Merchandise purchases paid in June 56,200 Purchase equipment for cash in June 17,500 Donald Company wants to keep a minimum cash balance of $10,000. Assume that borrowing occurs at the beginning of the month and repayments occur at the end of the month. Interest of 1% is paid in cash at the end of each month when debt is outstanding. Given this information prepare the cash budget for June. 4. The following data was obtained for a company that makes statues: Standard Inputs Expected Standard Price For Each Unit of Output Per Unit of Input Direct material 5 pounds $12 per pound Direct labor 1.5 hours $12 per hour During the month of July, the company actually produced 1,000 statutes, which is 100 units less than expected. Direct material purchased and used amounted to 5,500 pounds at a cost of $12.50 per pound. Actual direct labor was 1,450 hours at an actual cost of $13.00 per hour. Required: A) Compute the price and quantity variances for direct materials. B) Compute the price and quantity variances for direct labor. Be sure to comment on whether or not each variance is favorable or unfavorable. 2

Paper For Above instruction

The provided set of questions encompasses a comprehensive exploration of managerial accounting concepts, focusing on relevant information in decision-making, cost analysis, profit impact, and variance analysis. This paper will delve into each area, presenting detailed explanations, calculations, and implications aimed at understanding how managers utilize financial data to make informed decisions in a business context.

Understanding Relevance in Business Decisions

In managerial accounting, relevance is vital for effective decision-making. Information is considered relevant if it can influence a decision by differing between alternatives or providing insights into expected future outcomes. Specifically, the first question emphasizes that relevant information must either be expected future revenue or vary among alternatives. For example, when choosing between different marketing strategies, the expected future revenues, along with how they differ across options, serve as key relevant data. Past revenues are generally too historical to influence future choices directly, except when they inform trends or patterns, which are less pertinent in immediate decision-making.

Qualitative Aspects of Special Orders

Qualitative factors involve non-monetary considerations that impact business decisions involving special orders. While quantitative assessments focus on costs and revenues, qualitative analysis considers factors like customer relationships, supplier reliability, quality standards, and strategic alignment. For instance, accepting a special order might be affected by whether the order compromises quality or adversely affects existing customers, highlighting the importance of non-financial considerations beyond immediate monetary gains.

Incremental Benefits and Decision-Making

Incremental benefits refer to additional revenues or reduced costs that result directly from choosing an alternative course of action. This concept helps managers evaluate the financial impact of decisions like accepting a special order, discontinuing a product, or entering a new market. Recognizing that incremental benefits can include both increased revenues and cost savings ensures a comprehensive understanding of a decision’s value.

Differential Costs and Revenues in Comparing Alternatives

Determining the financial differences between alternatives hinges on identifying differential costs and revenues—costs and revenues that differ between options. This approach excludes irrelevant costs that remain constant regardless of the decision. For example, when deciding whether to continue or drop a product line, managers focus on the specific costs and revenues that change with the decision, such as variable costs and avoidable fixed costs.

Opportunity Cost and Resource Allocation

Opportunity cost represents the value of the next best alternative foregone. It is critical in scenarios where resources are scarce or have alternative uses. For example, the salary foregone by an individual quitting a job exemplifies opportunity cost, which influences decisions like whether to start a new business or stay employed.

Analyzing Specific Decision Scenarios

In the case of Sue contemplating quitting her job to open a coffee shop, her opportunity cost involves the salary she sacrifices—$83,000—plus any other benefits foregone. The decision hinges on comparing this opportunity cost against the potential profits of the new venture, considering revenues of $260,000 and costs of $210,000, which yield a potential profit of $50,000 from the coffee shop. If this profit exceeds her opportunity cost, transitioning may be justified.

Qualitative Factors in Make-or-Buy Decisions

Qualitative factors such as quality, credit terms, and delivery timeliness are crucial in making outsourcing decisions. While cost savings are important, these non-cost considerations affect long-term strategic relationships and product quality. Consequently, managers evaluate all relevant qualitative factors before deciding whether to make or buy a component.

Relevant Costs in Make-or-Buy Decisions

Relevant costs include variable costs that can be avoided if a component is purchased, as well as fixed costs that can be eliminated. Fixed overhead costs that are unavoidable and will continue regardless of the decision are irrelevant. For example, if fixed costs are sunk or unavoidable, they should not influence the decision to outsource.

Cost Considerations in Departmental Decisions

When contemplating department elimination or addition, organizations analyze avoidable and unavoidable costs. Costs that will cease if the department is eliminated are avoidable and relevant to the decision. Conversely, common or unavoidable costs remain regardless of the decision and are irrelevant.

Profitability in Product Decisions

Decisions to add or delete products involve assessing contribution margins relative to fixed costs. A product should be continued if its contribution margin exceeds its avoidable fixed costs, enhancing overall profitability. For instance, if the contribution margin from a product surpasses its fixed costs, including salaries for managers or specialized equipment, it should be maintained.

Cost-Allocation and Product Line Evaluation

Fixed costs associated with specific products, such as insurance expenses for equipment, can be avoidable if the product is discontinued, affecting the relevance of costs in decision making. The salary of the plant manager, supervising multiple products, is usually an unavoidable fixed cost and often not relevant for individual product decisions unless it can be specifically allocated.

Major Factors in Special Order Decisions

When evaluating special orders, critical considerations include whether accepted order prices cover incremental costs, do not diminish regular sales, and do not harm established customer relationships. Non-financial factors like scheduling constraints and capacity availability also influence acceptance decisions.

Case Analyses

Bonneville Company Subassembly Make-or-Buy Analysis

Given the costs of producing a subassembly in-house ($21 per unit) versus outsourcing at $19 per unit, with additional considerations such as supervisor termination and reusing idle capacity for another product generating $60,000, the analysis involves comparing incremental costs and benefits. The total cost of producing in-house includes direct materials, labor, variable overhead, and fixed supervisor salary, totaling $16 per unit, excluding depreciation and allocated fixed overhead which are sunk or fixed costs, irrelevant to the decision. Outsourcing at $19 per unit saves $2 per unit, but potential benefits from idle capacity and avoidable fixed costs support in-house production if it yields a net benefit exceeding outsourcing costs.

Central Industries Product Line Evaluation

Analyzing the contribution margins and fixed costs for products A, B, and C, with the goal of discontinuing Product C due to its negative operating income, reveals that dropping this product increases overall profitability. The loss of the contribution margin from Product C ($9,000) outweighs the fixed costs associated with it, and eliminating it would improve net income unless fixed costs are unavoidable. If all fixed costs were avoidable, discontinuing Product C would have a positive impact on profits.

Cash Budget Preparation for Donald Company

Preparing a cash budget entails tracking beginning cash balance, cash collections, disbursements, investments, and financing activities. Starting balance is $45,000, with collections of $99,000, and payments totaling $56,200 for purchases and $36,800 for expenses. After accounting for dividends and equipment purchases, the analysis determines if borrowing is necessary to maintain minimum cash balance, considering interest on borrowed amounts.

Variance Analysis in Manufacturing

Calculating material and labor variances involves comparing actual costs with standard costs, splitting into price and quantity variances. An unfavorable variance indicates higher costs than expected, while a favorable variance suggests cost savings. For materials, actual purchase price, total pounds used, and standard price guide variance calculations, revealing if price or usage caused variances. Similarly, labor variances evaluate whether wages were higher than standard rates or hours exceeded expectations, indicating efficiency or cost control issues.

Conclusion

Effective managerial decision-making depends heavily on understanding relevant information, the concept of opportunity costs, and detailed variance analysis. Quantitative data guides decisions about product lines, outsourcing, departmental changes, and special orders, but qualitative factors also play a vital role. Careful evaluation of costs and benefits, both financial and strategic, enables managers to optimize outcomes, improve profitability, and allocate resources efficiently.

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