Question

1. True or False: The alternative courses of action in a make-or-buy decision are (a) manufacture needed items internally or (b) purchase needed items externally.

2. True or False: Only variable costs can be differential.

3. True or False: If there is only one alternative course of action and the status quo is unacceptable. then there really is no decision to make

4. True or False: The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective.

5. True or False: differential analysis involves the comparison of one or more alternative courses of action with the status quo.

6. True or False: A decision must involve at least two alternative courses of action.

Answer 1

This question has 6 sub questions. As per the company policy I am answering only for the first 4.

1) True.

Justification: The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part—or significantly modified a product or part—is having trouble with current suppliers, or has diminishing capacity or changing demand.

2) False.

Justification:

Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. The concept is used when there are multiple possible options to pursue, and a choice must be made to select one option and drop the others. The concept can be particularly useful in step costing situations, where producing one additional unit of output may require a substantial additional cost. Here are two examples:

• Example of alternative decisions. If you have a decision to run a fully automated operation that produces 100,000 widgets per year at a cost of $1,200,000, or of using direct labor to manually produce the same number of widgets for $1,400,000, then the differential cost between the two alternatives is $200,000.

• Example of change in output. A work center can produce 10,000 widgets for $29,000 or 15,000 widgets for $40,000. The differential cost of the additional 5,000 widgets is $11,000.

Thus even the fixed cost can change because of a particular decision , say expanding beyond a certain limit.

3) False.

Justification: When there is only 1 alternative , and the same option is unacceptable , there is nothing to ho for. However , nothing to go for , is in itself a decision.

4) True.

Justification: The theory of constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it. TOC adopts the common idiom "a chain is no stronger than its weakest link". This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome.