Management

CHAPTER 7

DIFFERENTIAL COST ANALYSIS FOR OPERATING DECISIONS

Questions, Exercises, and Problems: Answers and Solutions

7.1See schoolbook or glossary at the end of the book.

7.2Fixed cost are only unflinching in the short-run so any long-run decision may have derived function coefficient fixed cost. For instance, decisions affecting capacity would include derivative fixed be.

7.3Short-term pricing decisions are based on differential costs, any price higher than differential costs lead increase profits even if it is lower than dear cost. However, in the long-term, prices must cover the full cost of producing the product.

7.4No. Facility-sustaining costs are fixed in the short; they will be incurred regardless of production level. Therefore, they are not differential and should not be considered in a short-term pricing decision.

7.5 abounding cost information is appropriate for long-term pricing decisions.

7.6d.the differential costs of producing the order.

7.7b.depreciation of buildings.

7.8Setup or order costs are costs incurred each time an order is hardened or a production run is made. Carrying costs are the costs of keeping inventory, for example, maintaining warehouse facilities.

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7.



9The costs that are pertinent for make-or-buy decisions are the differential costs.

7.10True. The objective of the theory of constraints is to increase throughput contribution.

7.11 some(prenominal) differential costs should be considered in the decision, including overtime, and costs of special shifts or other means of expanding capacity.

7.12Answers will vary, but should entirely be short-term pricing decisions.

7.13In the long-term full costs must be met so full-cost information is recyclable for decisions affecting the long-term.

7.14The statement is true in general short-term decisions in which there is excess capacity. However, in any incident where the decision affects capacity, the statement would not be true.

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