Write your answer in the space provided or on a separate sheet of paper. 89)

Scott is the new manager of the credit card department of a large bank. One of his first charges from the president was to reorganize the activities of the department. He is reluctant to start the reorganization without including a comprehensive report from accounting about the current costs of operations and possible costs of changes.




Explain how the accounting information can assist the manager and discuss the steps that might be taken to ensure an orderly decision process.


A cafe specializes in short-order meals and morning and afternoon snack-breaks. It is open from 9:00 am until 4:00 pm. An office manager in a nearby high-rise office building offers the owner a contract to provide her 50 employees with afternoon snack-breaks for$2.00 each. Each employee would receive a drink and a snack item. The shop has an hourly capacity of 50 customers. The owner estimates that the variable costs of the afternoon breaks would be $1.20 each. Currently the afternoon service, starting at 2:00, is running at only 50 percent capacity, although the morning and noon activities are near capacity. At the present level of operations each meal/snack served is allocated a fixed cost of $0.25.




a.What nonfinancial factors should be considered by the owner?

b.Given your concerns listed in part a., should the offer be accepted? Why or why not?


Assume you are a student enrolled in university and are committed to earning an undergraduate degree.

Your current decision is whether to finish university in four consecutive years or take a year off and work for some extra cash.

a.Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant.

b.Identify at least two costs that would be considered sunk costs for this decision.

c.Comment on at least one qualitative consideration for this decision.



A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with

an outdated décor that is still in good condition, menus and carpet that need to be replaced anyway, and

loyal customers.

Identify for the restaurant management

a.those costs that are relevant to this decision,

b.those costs that are not differential,

c.and qualitative considerations.




Alberta Auto Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Barrie Motors for $1,250 each. Alberta’s plant can manufacture the motors for the following costs per unit:


Direct materials$ 500

Direct manufacturing labour250

Variable manufacturing overhead200

Fixed manufacturing overhead350



If Alberta buys the motors from Barrie, 70 percent of the fixed manufacturing overhead applied will not be avoided.




a.Should the company make or buy the motors?

b.What additional factors should Alberta consider in deciding whether or not to make or buy the motors?


Doggie Dinner, Inc., currently manufactures three different types of scientifically balanced dog food. The

firm is considering eliminating one of the three products. What factors should be taken into account in

making this decision?


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