Chapter 4
Relevant Information for Decision Making
MULTIPLE CHOICE QUESTIONS
4.16.
Ans: C
4.17.
Ans: B
4.18.
Ans: D
4.19.
Ans: A
4.20.
Ans: C
EXERCISES
4.21
A. Savings if decision is to make $ 6
B. Savings if decision is to buy $ 4
4.23
A. Q = 563 snowboard
B. $245 / snowboard
C. Incremental profit for 200 snowboards = 0
4.24
A. 125 batches of Dip and 50 batches of Soft.
B. Total CM is $8,250
C. Mixing - $0.75 / minute
Baking - $0.875 / minute
D. mixing and baking are binding
E. $35 per batch to $75
4.25
B. $4.40 per pound for more fish.
4-2
Cost Management
4.26
A. Contribution margins per hour
HBM = ($49 – $5)*20 = $880
HBM2 = ($29 – $2.50)*30 = $795
HBM3 = ($29 – $2.50)*45 = $1,192.50
B. First sell HBM3, then HBM, and then HBM2.
C. up to $795 per hour
4.27
A. Produce 15 batches of Fancy Flight and 30 batches of Multigrain
B. Mixing and sterilization are binding.
C. Packaging and sterilization are binding.
4.28
C. The minimum acceptable price = $0.58.
4.29
A. The minimum price = $0.80 per brownie.
4.30
B. Saguaro should buy
C. X = 32,500 systems
4.31
C. Minimum price for Premium = $10,000 for the order.
4.32
A. BE = $780,392
B. BE units = 500 units
4.33
A. Premium then Royal then Regular
C. Q = 121 kgs
4.34
A. First C then B
B. $40,000
C. $31.51 CM forgone for each unit of D produced
4.35
A. target function equation = 8.5*Alpha+2.5*Beta+7.5*Zeta
B. The constraint equations are:
Grinding Hours: 2*Alpha+.25*Beta +.5*Zeta<10,000
Polishing Hours: .5*Alpha+1*Beta+2*Zeta<8,000
Chapter 4: Relevant Costs for Nonroutine Operating Decisions
4.36
A. Q = 3,000 units for alternative 1; Q = 3,333 units for alternative 2
B. Q = 4000 units
C. Alternative 1 has lowest cost and highest profit at 3,500 units
4.37
Total expected loss $71.50
4.38
Total savings $783,000
PROBLEMS
4.42
A. The firm should make the tubes
B. Maximum purchase price = $1.70
C. The company should purchase the tubes
D. The company should make 100,000 tubes and purchase 25,000
4.44
A.
1. Incremental cost: $30,000
2. Full cost: $30,550
3. Opportunity cost $3,350
B. Differential income in favour of the order
4.45
A.
B.
E.
F.
$ 1,650
The domestic plant should not be closed.
wages would need to be $0.30 per hour
Domestic plant - sweatshirts, and the foreign plant - jackets.
Produce the shirts domestically
4.46
C. Total incremental cost is $145,000 .
4.48
A. Produce internally
B. Buy form supplier
4.49
A. Product E = 2,000 units
Product D = 1,500 units
Product B = 7,500 units
Product C = 6,800 units
Product A = 0 units
B. TC = $10,000 + $25,000*Q
D. Pretax loss
$ (14,300)
E. Pretax income $ 45,000
4-3
4-4
Cost Management
4.51
A. The target cell for the optimal product mix should be set as:
27*Gizmo+20*Whizmo+42*Gadget
Constraints should be set as follows:
Grinding Machine Hours: 2*Gizmo+3*Whizmo+6*Gadget200
Finishing Machine Hours: 2*Gizmo+4*Whizmo+2*Gadget150
C. Opportunity cost = $847
D. Operating income = $1,825
MINI-CASES
4.52
A. 18,000 hours per year of idle capacity.
B. Minimum acceptable price $5.60
C. Contribution margin per case = $1.25 per case.
Advantage of accept over reject $ 6,000
4.53
A. Meals CM = $1.50
Cleaning CM = $4.80
Health department CM = $2.50
B. Estimated deficit $(33,000)
C. Estimated surplus $ 1,600
D. Estimated surplus $ 1,000
Chapter 4: Relevant Costs for Nonroutine Operating Decisions
4.54
A. Option 1 Profit:
= £640,000*R - $600,000
Option 2 Profit:
= £320,000*R - $18,000
Option 3 Profit:
If R<$2.1875:
$770,000
If R>$2.1875:
= £640,000*R - $630,000
B.
C.
D.
F.
R = 1.81875
R = 2.4625
R = 1.9125
Profit lost
$ 30,000
4-5