101. The best way to allocate scare resources to attain a specific objective, such as the
maximization of operating income, is to use:
102. Sensitivity analysis in linear programming is used to:
103. The shadow price in a linear programming model is:
104. Harrington Corporation produces three products, A, B, and C. Pertinent information on
these products is as follows:
Product Selling Price
per Unit Variable
Cost per Unit Fixed
Cost per Unit DL Hours
per Unit
A $4.00 $1.00 $2.00 2
B $3.50 $0.50 $2.00 2
C $6.00 $2.00 $3.00 3
The objective function for a linear program to maximize contribution margin from the three
products is:
105. Harrington Corporation produces three products, A, B, and C. Pertinent information on
these products is as follows:
Product Selling Price
per Unit Variable Cost
per Unit Fixed
Cost per Unit DL Hours
per Unit
A (Anchor bolts) $4.00 $1.00 $2.00 2
B (Bearings) $3.50 $0.50 $2.00 2
C (Castings) $6.00 $2.00 $3.00 3
There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only;
50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the
capacity.
The direct labor hour constraint for Harrington’s linear programming model is:
106. Harrington Corporation produces three products, A, B, and C. Pertinent information on
these products is as follows:
Product Selling Price
per Unit Variable Cost
per Unit Fixed
Cost per Unit DL Hours
per Unit
A (Anchor bolts) $4.00 $1.00 $2.00 2
B (Bearings) $3.50 $0.50 $2.00 2
C (Castings) $6.00 $2.00 $3.00 3
There are 150 direct labor hours available. Machine-hour capacity allows 100 anchor bolts, only;
50 bearings, only; 40 casters, only; or any combination of the three that does not exceed the
capacity.
The machine-hour constraint for Harrington’s linear programming model is:
107. Which one of the following is most relevant to an equipment-replacement decision
(assume no tax effects) used in a trade or business?
108. In situations when management must decide on accepting or rejecting one-time-only
special orders, where there is sufficient capacity, which one of the following would not be
relevant to the decision?
109. Southern Company packages and sells nuts in cans. Pecans, cashews, Brazil nuts,
hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Southern
wants to package the nuts so that it can maximize its operating profit while considering market
demand. In addition, there are limited supplies for some types of nuts. The technique that
Southern should employ to address this decision problem is:
110. A small company makes only two products (X and Y), with the following production
constraints representing two machines and their maximum availability:
2X + 3Y ≤ 18
2X + Y ≤ 10
X ≥ 0, Y ≥ 0
where: X = units of the first product, Y = units of the second product
If the profit equation is Z = $4X + $2Y, the maximum possible profit is:
111. United Industries manufactures three products in its highly automated factory. The
products are all popular, with demand far exceeding the company’s ability to supply the
marketplace. To maximize (short-term) operating income, management should focus on each
product’s:
112. Copeland Inc. produces product X-547 in a joint manufacturing process. The company is
studying whether to sell X-547 at the split-off point or upgrade (i.e., further process) the product
to become Xylene. The following information has been gathered:
(1) Selling price per pound of X–547.
(2) Variable manufacturing costs of the upgrade process.
(3) Avoidable fixed costs of the upgrade process.
(4) Selling price per pound of Xylene.
(5) Joint manufacturing costs to produce X-547.
Which of the items should be reviewed when making the upgrade decision?
113. Management accountants are frequently asked to analyze various decision situations
including the following:
I. The cost of a special device that is necessary if a special order is accepted.
II. The cost proposed annually for the plant service for the grounds at corporate headquarters.
III. Joint production costs incurred, to be considered in a sell–or–process-further decision.
IV. The costs associated with alternative uses of plant space, to be considered in a make/buy
decision.
V. The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-
disposal decision.
The costs described in situations I and IV above are examples of:
114. Management accountants are frequently asked to analyze various decision situations
including the following:
I. The cost of a special device that is necessary if a special order is accepted.
II. The cost proposed annually for the plant service for the grounds at corporate headquarters.
III. Joint production costs incurred, to be considered in a sell-or–process-further decision.
IV. The costs associated with alternative uses of plant space, to be considered in a make/buy
decision.
V. The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-
disposal decision.
The costs described in situations III and V above are examples of:
115. Manders Manufacturing Corporation uses the following model to determine an optimal
product mix for its two products, metal (M) and scrap metal (S):
Max Z = $30M + $70S
Where: 3M + 2S ≤ 15
2M + 4S ≤ 18
The above mathematical functions together constitute a(n):
116. Manders Manufacturing Corporation uses the following model to determine an optimal
product mix for its two products, metal (M) and scrap metal (S):
Max Z = $30M + $70S
Where: 3M + 2S ≤ 15
2M + 4S ≤ 18
The two inequality functions in the information given represent:
117. Manders Manufacturing Corporation uses the following model to determine an optimal
product mix for its two products, metal (M) and scrap metal (S):
Max Z = $30M + $70S
Where: 3M + 2S ≤ 15
2M + 4S ≤ 18
The point where M = 2 and S = 3 would:
118. The Multi Resource Company manufactures two lines of washing machines, Regular and
Deluxe. The contribution margin per unit of a Regular model is $110 and for Deluxe Model is
$175. The company has two departments, Assembly and Testing. The Regular Model requires 3
hours to assemble, while a Deluxe Model requires 4 hours. The total time available in Assembly is
12,000 hours. In the Testing Department, it requires 2.5 hours to test a Regular Model and 1.5
hours to test a Deluxe Model. A total of 6,000 hours of testing time is available. Based on this
information, the optimum production plan for Multi Resource is:
119. Over the past three decades, the cost structure for a typical manufacturing firm has
shifted dramatically from labor and material as the primary costs in the 1970s, with overhead now
the major cost category in the 2000s. What are the implications of this cost structure shift for
strategic relevant cost analysis?
120. Apex Manufacturing Corporation is considering a significant shift in the mix of products it
manufactures. The costs associated with current and proposed production schedules are shown
below by category:
Cost per month Present Proposed
Plant depreciation $52,000 $52,000
Equipment depreciation 28,000 30,000
Raw material 276,000 284,000
Direct labor 312,000 334,000
Manufacturing overhead (excludes depreciation) 801,000 818,000
The proposed production will require a one-time purchase of equipment costing $180,000. No
change in selling or administrative cost from their present levels is expected.
Required:
1. What type of relevant cost analysis would be appropriate in this situation (special order,
make-lease-buy, etc.)? Why?
2. What role does depreciation and equipment purchase cost play in this decision?
3. What is the minimum amount that revenue would have to increase per month to justify the
proposed production schedule? Ignore taxes and the time value of money.
121. Quinta Inc. manufactures machine parts for aircraft engines. The CEO is considering an
offer from a subcontractor who would provide 2,800 units of product QR128 for a total price of
$190,000. If Quinta does not purchase these parts from the subcontractor it must produce them
in-house with the following costs:
Direct Materials $22
Direct Labor 18
Variable Overhead 14
Allocated Fixed Factory Overhead 16
Allocated Fixed Selling Costs 5
Total Cost $75
