0.Explain the term opportunity costs.

Select two decisions, one from personal life and one a common decision that manufacturers face. Provide specific examples of relevant opportunity costs.

In-Class Activity 1

"All decisions have long-term implications, so the distinction between tactical decisions and long-term decisions is meaningless".

Do you agree or disagree with this statement? Give your reasons.

In-Class Activity 2

Is the book value of inventory on hand a relevant cost? Explain your answer.

n-Class Activity 3

Select a decision that an organization may face.

Provide an example of irrelevant future costs for this decision. Explain why are they irrelevant.

In-Class Activity 4

Explain how the existence of spare or full production capacity can affect the choice of whether to accept or reject a special order.

In-Class Activity 5

Briefly describe the appropriate approach for making a decision about adding or deleting a department. Is this a tactical or long-term decision?

Explain your answer.

Review Questions 19.7

Why might a manager want to consider sunk costs in making a decision? Provide two examples of sunk costs and explain why they are irrelevant in decision making.

Exercise 19.24 E19.24 Special order: manufacturer LO19.4 Global Chemical Company (GCC) recently received an order for a product that it does not normally 19.5 produce. Since the company has spare production capacity, management are considering accepting the order. In analysing the decision, the assistant accountant is compiling the relevant costs of producing the order. Production of the special order would require 8000 kilograms of theolite. Global Chemical Company does not use theolite for its regular product, but the firm has 8000 kilograms of the chemical on hand from the days when it used theolite regularly. The theolite could be sold to a chemical wholesaler for $14 500. The carrying amount of the theolite is $2 per kilogram. Global Chemical Company could buy theolite for $2.40 per kilogram. Required: 1 What is the relevant cost of theolite for the purpose of analysing the special order decision? 2 Discuss each item of numerical data given in the exercise with regard to its relevance in making the decision. Exercise 19.25 E19.25 Special order: manufacturer Refer to the data given in Exercise 19.24. Global Chemical Company's special order also requires 1000 LO19.4 kilograms of genatope, a solid chemical regularly used in the company's products. The current stock of 19.5 genatope is 8000 kilograms at a carrying amount of $8.10 per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of $8.70 per kilogram. Without the special order, the purchasing manager predicts that the price will be $8.30 when normal restocking takes place. The order size for genatope is 5000 kilograms. Required: 1 What is the relevant cost of genatope? 2 Discuss each item of numerical data detailed in this exercise in terms of its relevance to the decision.. 19.8 4 l'lveruuu-_._. Further procueln'; relevant costs: cost volume prot analysis: manufacturer Iron Man Cleaning Company produces cleaning compounds and solutions for industrial and household use. While most at its products are processed independently. a few are related. Grit 337. a coarse cleaning powder with many industrial uses, costs $320 per kilogram to maize and sells for $4 per kilogram. A small portion of the annual production of this product is retained for further processing in the Mixing Department; there, it is combined with several other ingredients to form a paste, which is marketed as a silver polish selling for $8 per jar. This further processing requires 0.25 kilogram of Grit 337 per jar. Costs of other ingredients. labour, and variable overhead associated with this further processing amount to $5 per jar. Variable selling costs are $0.60 per jar. it the decision were made to cease production of the silver polish. $11 200 of the Mixing Department's fixed costs could be avoided. Hercules has limited production capacity for Grit 5:57. but unlimited demand for the cleaning powder. Required: Calculate the minimum number of jars of silver polish that would have to be sold to justify the further processing of GrW-I, (cm; W