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Questions and Answers

What is excluded from Baxter Battery's existing cost system?

Organization-sustaining costs

Customer orders and design changes

Indirect factory wages and factory equipment depreciation

Direct materials, direct labor, and shipping (correct)

What percentage of indirect factory wages is consumed by customer orders?

35%

25%

30% (correct)

20%

What are the total activities for the 'factory equipment depreciation' cost pool?

800,000 machine-hours (correct)

10,000 customer orders

4,000 design changes

2,000 customers served

What will not be assigned to products or customers?

Organization-sustaining costs Signup and view all the answers

How many batteries were ordered for 'SureStart LongLife'?

800,000 Signup and view all the answers

Which product requires new design resources?

LongLife Signup and view all the answers

What is the total number of customer orders for Baxter Battery?

10,000 Signup and view all the answers

When analyzing a special order, which costs and benefits are relevant?

Only the incremental costs and benefits Signup and view all the answers

What is the opportunity cost?

The benefit that is foregone as a result of pursuing some course of action Signup and view all the answers

In volume trade-off decisions, what should a company do when it does not have enough capacity to produce all products and sales volumes demanded?

Trade off or sacrifice production of some products in favor of others to maximize profits Signup and view all the answers

What should a company focus on when a limited resource restricts its ability to satisfy demand?

The product mix that maximizes the company’s total contribution margin Signup and view all the answers

What is the constrained resource in Ensign Company's production?

Machine A1 Signup and view all the answers

What is the opportunity cost if the space to make Part 4A had an alternative use?

Equal to the segment margin that could have been derived from the best alternative use of the space Signup and view all the answers

What represents allocated costs common to all items produced in the factory and would continue unchanged?

Allocated general factory overhead Signup and view all the answers

What is the financial advantage of accepting the special order for Jet Inc.?

$6,000.00 Signup and view all the answers

What are the avoidable costs associated with making part 4A?

Direct materials, direct labor, variable overhead, and the supervisor’s salary Signup and view all the answers

What approach is used to decide whether to retain or drop the digital watch segment?

Contribution margin approach Signup and view all the answers

Why is the contribution margin approach necessary for decision-making?

To identify relevant fixed costs Signup and view all the answers

What is the key to effective decision-making?

Identifying relevant costs and benefits Signup and view all the answers

What would be the operating profit loss for the company if the digital watch segment is dropped?

$40,000 Signup and view all the answers

In decision-making, when are sunk costs considered relevant?

Sunk costs are always irrelevant Signup and view all the answers

Why can allocated fixed costs distort the decision to keep or drop a segment?

They may not accurately reflect the segment's profitability Signup and view all the answers

What is crucial in decision-making according to the text?

Differential analysis Signup and view all the answers

What is an example of a sourcing decision presented in the text?

Choosing between making a part internally or buying it from an external supplier Signup and view all the answers

When making decisions, what needs to be considered according to the text?

Opportunity costs Signup and view all the answers

What should the decision to make or buy a part consider besides the cost comparison?

Allocation of fixed costs, volume assumption, and impact on the company's overall net operating income Signup and view all the answers

What is the total machine-hours required for SureStart batteries?

$480,000$ machine-hours Signup and view all the answers

What financial advantage should the decision to make a part internally consider?

$160,000 Signup and view all the answers

How many separate orders were placed for the 400,000 batteries?

6,000 separate orders Signup and view all the answers

What is the total machine-hours required for LongLife batteries?

$320,000$ machine-hours Signup and view all the answers

Study Notes

Key Concepts in Decision-Making and Differential Analysis

400,000 batteries ordered with 6,000 separate orders
SureStart requires 36 minutes of machine time for a total of 480,000 machine-hours
4,000 custom designs prepared
LongLife requires 48 minutes of machine time for a total of 320,000 machine-hours
Decision-making involves choosing from at least two alternatives
Identifying relevant costs and benefits is crucial in decision-making
The key to effective decision-making is differential analysis
Sunk costs are always irrelevant when choosing among alternatives
Future costs and benefits that do not differ between alternatives are irrelevant
Opportunity costs need to be considered when making decisions
Identifying relevant costs using an example of Cynthia's decision to drive or take the train
Total cost approach versus differential cost approach in decision-making

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Description

Test your understanding of decision-making and differential analysis with this quiz. Explore key concepts such as relevant costs, sunk costs, opportunity costs, and the role of differential analysis in effective decision-making. Dive into scenarios and examples to grasp the total cost approach versus the differential cost approach.