Exam 2 (Quiz 6) - Chapter 25

Question 1

List:

Steps in the Decision Making Process

Answer 1

1. Clarify the decision problem
2. Specify the criterion
3. Identify the alternatives
4. Develop the decision model
5. Collect the data
6. Make a decision

Question 2

Define:

Relevant (in decision making process)

Answer 2

Pertinent to a decision problem

Question 3

Define:

Accurate (in decision making process)

Answer 3

Information must be precise

Question 4

Define:

Timely (in decision making process)

Answer 4

Available in time for a decision

Question 5

Answer:

Relevant information has ___(a)___ and it ___(b)___

Answer 5

a. bearing on the future

b. differs among alternatives

Question 6

Example:

Relevant information for decision making has bearing on the future

Answer 6

We cannot decide what to have for breakfast yesterday

Question 7

Example:

Relevant information for decision making differs among alternatives

Answer 7

If deciding between 2 items that are the same price, the price is not relevant to the decision

Question 8

Define:

Special Order

Answer 8

When a customer requests a one time order at a reduced sale price

Question 9

List:

Considerations for Accepting Special Orders

Answer 9

1. Does the company have the excess capacity available to fill the order?
2. Will reduced sales price be enough to cover incremental costs (variable and additional fixed costs)
3. Will it affect regular sales in the long run?

Question 10

Define:

Incremental Costs with Special Orders

Answer 10

Variable costs and any additional fixed costs

Question 11

Equation:

Incremental Profit from Special Order

Answer 11

Total Sales Revenue

-

Total Variable Costs

-

Additional fixed costs

Question 12

Equation:

Total Variable Cost for Special Order

Answer 12

Variable Cost / Unit

*

Special Order Qty

Question 13

Answer:

The decision rule for accepting a special order say that if there is ___(a)___ profit you should accept the order and if there is ___(b)___ profit you should reject the order

Answer 13

a. positive incremental

b. negative incremental

Question 14

List:

Considerations for Dropping Products, Departments, or Territories

Answer 14

1. Does it provide a positive contribution margin?
2. Will fixed costs continue if it is dropped?
3. Will dropping it affect sales of company’s other products?
4. What could company do with freed manufacturing capital?

Question 15

Answer:

If the fixed costs will continue if the company drops a product, then the fixed costs are ___(a)___

Answer 15

a. irrelevant

Question 16

Equation:

Contribution Margin

Answer 16

Sales Revenue

-

Variable Cost

Question 17

Answer:

The decision rule for dropping a product/segment says that if the ___(a)___ you do not drop it, but if the ___(b)___ you do drop it

Answer 17

a. lost revenues exceed total cost savings

b. lost revenues are less than the total cost savings

Question 18

Answer:

If the lost revenues from dropping a product exceed the total cost savings you should ___(a)___

Answer 18

a. not drop the product

Question 19

Answer:

If the lost revenues are less than the total cost savings you should ___(a)___ the product

Answer 19

a. Drop the product

Question 20

Answer:

The decision rule says that if the ___(a)___ you should outsource, and if the ___(b)___ you should not outsource a product

Answer 20

a. incremental costs of making exceed incremental costs to outsource
b. incremental costs of making are less than the incremental costs to outsource

Question 21

List:

Benefits of Outsourcing

Answer 21

1. Save Cost (ex - competitive bidding system)

2. Focus on core competencies (ex - keep designing, outsource production)

Question 22

List:

Costs of Outsourcing

Answer 22

1. Dependence on suppliers increases

2. Uncertain about long-run benefits and costs

Question 23

Answer:

What do managers do to minimize the costs/risks of outsourcing?

Answer 23

Generally enter into long-run contracts specifying costs, quality, and delivery schedules with suppliers

Question 24

Answer:

The decision rule says that if ___(a)___ you should process further and if ___(b)___ you should sell as is

Answer 24

a. extra revenue from processing further exceeds extra cost

b. extra revenue from processing further is less than extra cost