ACCT 648 CH. 17

Ferro, Inc., an automobile manufacturing company, produces 150,000 units of steel wheels used in its automobiles each year. An outside supplier has offered to supply steel wheels for $35 each. The unit cost of manufacturing the steel wheels is: Direct materials $13.00 Direct labor 12.00 Variable overhead (power) 11.00 Fixed overhead 5.00 Total unit cost $41.00 Overhead is applied on the basis of machine hours; the steel wheels require 125,000 machine hours per year. Assuming that none of the fixed costs are avoidable, which of the following alternatives is most cost effective? a. Ferro, Inc., should buy the steel wheels as the analysis shows a $150,000 advantage in favor of buying the part from outside. b. Ferro, Inc., should make the steel wheels as the fixed costs of $5 are not avoidable. c. Ferro, Inc., should make the steel wheels as the analysis shows a $100,000 advantage in favor of making the part in-house. d. Ferro, Inc., should buy the steel wheels as the analysis shows a $900,000 advantage in favor of making the part in-house.

a. Ferro, Inc., should buy the steel wheels as the analysis shows a $150,000 advantage in favor of buying the part from outside.

Which of the following steps in a tactical decision-making model follows the step that involves the comparison of the relevant costs and benefits of each alternative? a. Assessing qualitative factors b. Identifying the alternatives as possible solutions to the problem and eliminating any unfeasible alternatives c. Recognizing and defining the problem d. Selecting the alternative with the greatest overall benefit

a. assessing qualitative factors

Which of the following statements is true about tactical decision making? a. Tactical decision making consists of choosing among alternatives with an immediate or limited end in view. b. Tactical decision making involves identifying and eliminating relevant costs. c. The immediate objective of tactical decision making is to increase long-run profits. d. Tactical decision involves the commitment of large amount of resources.

a. choosing among alternative with an immediate or limited end in view

Dazzle, Inc., produces two types of cell phones, Series 9A and Series 14 M, and targets different income level customers. Series 9A has been running under losses since 3 years. Based on the given scenario, which of the following tactical decision alternatives should Dazzle, Inc., consider regarding Series 9A? a. Sell-or-process further b. Keep-or-drop c. Make-or-buy d. Accept-or-reject special order

b. keep or drop

To handle the qualitative factors in a decision-making process, the decision maker should: a. eliminate the relevant benefits of qualitative factors. b. quantify qualitative factors. c. increase the sunk costs relating to qualitative factors. d. identify the committed resources relating to qualitative factors.

b. quantify qualitative factors

In which of the following cases will the activity cost for committed resources be relevant to the decision? a. When the increase in demand is equal to the unused capacity of existing committed resources b. When the increase in demand is more than the unused capacity of existing committed resources c. When the increase in demand is one fourth of the unused capacity of existing committed resources d. When the increase in demand is half of the unused capacity of existing committed resources

b. when the increase in demand is more than the unused capacity of committed resources

Which of the following costs is an example of an irrelevant cost? a. Tariff b. Shipping cost c. Depreciation expense d. Installation cost

c. depreciation expense

Which of the following statements is true about relevant costs? a. Depreciation represents an allocation of a cost already incurred and is an example of a relevant cost. b. Relevant costs are costs that have already been incurred and remain the same across alternatives. c. Relevant costs are future costs that differ across alternatives. d. Relevant costs should be eliminated before determining benefits of various alternatives in a decision-making process.

c. relevant costs are future costs that differ among alternatives

Which of the following statements is true regarding flexible resources? a. Flexible resources are usually acquired in lumpy amounts. b. Flexible resources are acquired in advance of usage through implicit contracting. c. Flexible resources are supplied as demanded (used) and needed. d. Flexible resources are always irrelevant while making tactical decisions.

c. they are supplied as demanded and needed

Tomate, Inc., a tomato ketchup manufacturing company, was producing at 75 percent of its production capacity, which was 500,000 bottles a year. A retail giant from a different region offered to buy 150,000 bottles of ketchup at $2 per bottle. The normal selling price is $2.25 bottle. Based on the given scenario, which of the following tactical decision alternatives should Tomate, Inc., consider? a. Sell-or-process further b. Keep-or-drop c. Make-or-buy d. Accept-or-reject special order

d. accept or reject special order

In the case of flexible resources, if the demand for an activity changes across alternatives, then resource spending will: a. become half of what it was before and the cost of the activity is irrelevant to the decision. b. remain constant and the cost of the activity is relevant to the decision. c. become twice of what it was before and the cost of the activity is irrelevant to the decision. d. change and the cost of the activity is relevant to the decision.

d. change and the cost of the activity is relevant to the decision

Which of the following statements is true about foreign trade zones? a. Items that leave a foreign trade zone have to pay tariff if they are bound for non-U.S. destinations. b. Items that leave a foreign trade zone do not have to pay tariff if they are bound for U.S. destinations. c. Goods imported into a foreign trade zone need to pay duty until they leave the zone. d. Goods imported into a foreign trade zone are duty-free until they leave the zone.

d. they are duty-free until they leave the zone