Sming years. Ihè company is thinking of introducing a sales commission to encourage its sales people to make more sales and improve company's profitability. When designing the sales commission the company should base the sales commission on: O a. The color of the product Ob. None of the given answers O C. The number of employees Od. The selling price O e. The contribution margin
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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- Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less than expected. Mandy Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. After a careful review of her firms condition, Mandy realized that the main obstacle for increasing revenues and reducing costs was the high defect rate of her products (a 6 percent reject rate). She was certain that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Mandy also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy: a. Improve the soldering capabilities by sending employees to an outside course. b. Redesign the insertion process to eliminate some of the common mistakes. c. Improve the procurement process by selecting suppliers that provide higher-quality circuit boards. Required: 1. State the revenue growth and cost reduction strategy using a series of cause-and-effect relationships expressed as if-then statements. 2. Illustrate the strategy using a strategy map. 3. Explain how the revenue growth strategy can be tested. In your explanation, discuss the role of lead and lag measures, targets, and double-loop feedback.Danna Martin, president of Mays Electronics, was concerned about the end-of-the year marketing report that she had just received. According to Larry Savage, marketing manager, a price decrease for the coming year was again needed to maintain the companys annual sales volume of integrated circuit boards (CBs). This would make a bad situation worse. The current selling price of 18 per unit was producing a 2-per-unit profithalf the customary 4-per-unit profit. Foreign competitors kept reducing their prices. To match the latest reduction would reduce the price from 18 to 14. This would put the price below the cost to produce and sell it. How could these firms sell for such a low price? Determined to find out if there were problems with the companys operations, Danna decided to hire a consultant to evaluate the way in which the CBs were produced and sold. After two weeks, the consultant had identified the following activities and costs: The consultant indicated that some preliminary activity analysis shows that per-unit costs can be reduced by at least 7. Since the marketing manager had indicated that the market share (sales volume) for the boards could be increased by 50% if the price could be reduced to 12, Danna became quite excited. Required: 1. CONCEPTUAL CONNECTION What is activity-based management? What phases of activity analysis did the consultant provide? What else remains to be done? 2. CONCEPTUAL CONNECTION Identify as many nonvalue-added costs as possible. Compute the cost savings per unit that would be realized if these costs were eliminated. Was the consultant correct in the preliminary cost reduction assessment? Discuss actions that the company can take to reduce or eliminate the nonvalue-added activities. 3. Compute the unit cost required to maintain current market share, while earning a profit of 4 per unit. Now compute the unit cost required to expand sales by 50%, assuming a per-unit profit of 4. How much cost reduction would be required to achieve each unit cost? 4. Assume that further activity analysis revealed the following: switching to automated insertion would save 60,000 of engineering support and 90,000 of direct labor. Now, what is the total potential cost reduction per unit available from activity analysis? With these additional reductions, can Mays achieve the unit cost to maintain current sales? To increase it by 50%? What form of activity analysis is this: reduction, sharing, elimination, or selection? 5. CONCEPTUAL CONNECTION Calculate income based on current sales, prices, and costs. Then calculate the income by using a 14 price and a 12 price, assuming that the maximum cost reduction possible is achieved (including Requirement 4s reduction). What price should be selected?Florentino Allers is the production manager of Electronics Manufacturer. Due to limited capacity, the company can only produce one of two possible products: An industrial motherboard with a 75% probability of making a profit of $1 million and a 25% probability of making a profit of $150,000 A regular motherboard with a 100% chance of making a profit of $710,000 Florentino will get a 20% bonus from his department. Florentino has the responsibility to choose between the two products and is more of a risk-taker, more so than most of the top management at Electronics Manufacturer. A. Which option is Florentino more likely to choose and why? B. Which option would the company be more likely to choose and why? C. What changes should the company make to Florentinos compensation to avoid unnecessary risks?
- Rizzo Goal Inc. produces and sells hockey equipment, often custom made for online orders. The company has the following performance metrics on its balanced scorecard: days from ordered to delivered, number of shipping errors, customer retention rate, and market share. A measure map illustrates that the days from ordered to delivered and the number of shipping errors are both expected to directly affect the customer retention rate, which affects market share. Additional internal analysis finds that: Every shipping error over three shipping errors per month reduces the customer retention rate by 1.5%. On average, each day above three days from ordered to delivered yields a reduction in the customer retention rate of 1%. Each day before three days from order to delivery yields an increase in the customer retention rate of 1%, on average. Rizzo Goal Inc.s current customer retention rate is 60%. The company estimates that for every 1% increase or decrease in the customer retention rate, market share changes 0.5% in the same direction. Rizzo Goal Inc.s current market share is 21.4%. Ignoring any other factors, if the company has six shipping errors this month and an average of 3.5 days from ordered to delivered, determine (a) the new customer retention rate and (b) the new market share that Rizzo Goal Inc. expects to have.Carpetland salespersons average 8,000 per week in sales. Steve Contois, the firms vice president, proposes a compensation plan with new selling incentives. Steve hopes that the results of a trial selling period will enable him to conclude that the compensation plan increases the average sales per salesperson. a. Develop the appropriate null and alternative hypotheses. b. What is the Type I error in this situation? What are the consequences of making this error? c. What is the Type II error in this situation? What are the consequences of making this error?At the beginning of the last quarter of 20x1, Youngston, Inc., a consumer products firm, hired Maria Carrillo to take over one of its divisions. The division manufactured small home appliances and was struggling to survive in a very competitive market. Maria immediately requested a projected income statement for 20x1. In response, the controller provided the following statement: After some investigation, Maria soon realized that the products being produced had a serious problem with quality. She once again requested a special study by the controllers office to supply a report on the level of quality costs. By the middle of November, Maria received the following report from the controller: Maria was surprised at the level of quality costs. They represented 30 percent of sales, which was certainly excessive. She knew that the division had to produce high-quality products to survive. The number of defective units produced needed to be reduced dramatically. Thus, Maria decided to pursue a quality-driven turnaround strategy. Revenue growth and cost reduction could both be achieved if quality could be improved. By growing revenues and decreasing costs, profitability could be increased. After meeting with the managers of production, marketing, purchasing, and human resources, Maria made the following decisions, effective immediately (end of November 20x1): a. More will be invested in employee training. Workers will be trained to detect quality problems and empowered to make improvements. Workers will be allowed a bonus of 10 percent of any cost savings produced by their suggested improvements. b. Two design engineers will be hired immediately, with expectations of hiring one or two more within a year. These engineers will be in charge of redesigning processes and products with the objective of improving quality. They will also be given the responsibility of working with selected suppliers to help improve the quality of their products and processes. Design engineers were considered a strategic necessity. c. Implement a new process: evaluation and selection of suppliers. This new process has the objective of selecting a group of suppliers that are willing and capable of providing nondefective components. d. Effective immediately, the division will begin inspecting purchased components. According to production, many of the quality problems are caused by defective components purchased from outside suppliers. Incoming inspection is viewed as a transitional activity. Once the division has developed a group of suppliers capable of delivering nondefective components, this activity will be eliminated. e. Within three years, the goal is to produce products with a defect rate less than 0.10 percent. By reducing the defect rate to this level, marketing is confident that market share will increase by at least 50 percent (as a consequence of increased customer satisfaction). Products with better quality will help establish an improved product image and reputation, allowing the division to capture new customers and increase market share. f. Accounting will be given the charge to install a quality information reporting system. Daily reports on operational quality data (e.g., percentage of defective units), weekly updates of trend graphs (posted throughout the division), and quarterly cost reports are the types of information required. g. To help direct the improvements in quality activities, kaizen costing is to be implemented. For example, for the year 20x1, a kaizen standard of 6 percent of the selling price per unit was set for rework costs, a 25 percent reduction from the current actual cost. To ensure that the quality improvements were directed and translated into concrete financial outcomes, Maria also began to implement a Balanced Scorecard for the division. By the end of 20x2, progress was being made. Sales had increased to 26,000,000, and the kaizen improvements were meeting or beating expectations. For example, rework costs had dropped to 1,500,000. At the end of 20x3, two years after the turnaround quality strategy was implemented, Maria received the following quality cost report: Maria also received an income statement for 20x3: Maria was pleased with the outcomes. Revenues had grown, and costs had been reduced by at least as much as she had projected for the two-year period. Growth next year should be even greater as she was beginning to observe a favorable effect from the higher-quality products. Also, further quality cost reductions should materialize as incoming inspections were showing much higher-quality purchased components. Required: 1. Identify the strategic objectives, classified by the Balanced Scorecard perspective. Next, suggest measures for each objective. 2. Using the results from Requirement 1, describe Marias strategy using a series of if-then statements. Next, prepare a strategy map. 3. Explain how you would evaluate the success of the quality-driven turnaround strategy. What additional information would you like to have for this evaluation? 4. Explain why Maria felt that the Balanced Scorecard would increase the likelihood that the turnaround strategy would actually produce good financial outcomes. 5. Advise Maria on how to encourage her employees to align their actions and behavior with the turnaround strategy.
- Video Tech is considering marketing one of two new video games for the coming holiday season: Battle Pacific or Space Pirates. Battle Pacific is a unique game and appears to have no competition. Estimated profits (in thousands of dollars) under high, medium, and low demand are as follows: Video Tech is optimistic about its Space Pirates game. However, the concern is that profitability will be affected by a competitor’s introduction of a video game viewed as similar to Space Pirates. Estimated profits (in thousands of dollars) with and without competition are as follows: Develop a decision tree for the Video Tech problem. For planning purposes, Video Tech believes there is a 0.6 probability that its competitor will produce a new game similar to Space Pirates. Given this probability of competition, the director of planning recommends marketing the Battle Pacific video game. Using expected value, what is your recommended decision? Show a risk profile for your recommended decision. Use sensitivity analysis to determine what the probability of competition for Space Pirates would have to be for you to change your recommended decision alternative.Company XYZis specialized in producing and selling smart watches. The company currently has two products and is planning to improve it profits in the coming years. The company is thinking of introducing a sales commission to encourage its sales people to make more sales and improve company's profitability. When designing the sales commission the company should base the sales commission on The color of the product a O The contribution margin b O The number of employees.cO The selling price d O None of the given answers .e OStylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price $ 76.00 Per-unit variable costs: Invoice cost 40.25 Sales commissions 17.25 Total per-unit variable costs $ 57.50 Total annual fixed costs: Advertising $ 54,300 Rent 76,600 Salaries 224,600 Total annual fixed costs $ 355,500 If 38,500 office chairs were sold, Stylish Sitting's operating income (πB) would be: (Do not round intermediate calculations.)
- Divine Electronics Ltd. manufactures a line of headphones. Sales are increasing, and management is concerned that the company may not have sufficient capacity to meet the expected demand for the coming year. The following data are available for planning purposes: Product Estimated Demand Next Year Selling Price Direct Materials Direct Labour 1 Wire 78,000 $25.00 $7.30 $5.00 2 Wire 75,000 20.00 10.20 3.20 3 Wire 115,000 17.50 2.80 5.00 The following additional information is available: 1. With the strong competition, the company feels that it can't increase its selling prices above those indicated 2. The direct labour rate is $10 per hour; this rate is expected to remain unchanged during the coming year. 3. Fixed manufacturing costs total $640,000 per year. Variable manufacturing overhead costs are equal to 25% of the direct labour costs. 4. The company's plant has a capacity of 110,000 direct labour-hours per…Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price $ 73.00 Per-unit variable costs: Invoice cost 40.45 Sales commissions 17.45 Total per-unit variable costs $ 57.90 Total annual fixed costs: Advertising $ 54,500 Rent 77,000 Salaries 225,000 Total annual fixed costs $ 356,500 If 38,900 office chairs were sold, Stylish Sitting's operating income (πB) would be: (Do not round intermediate calculations.) Multiple Choice $230,890. $270,890. $200,890. $330,890.Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions. The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions: Product Code Market Conditions Favorable P = 0.2 Neutral P = 0.7 Unfavorable P = 0.1 Wren $120,000 $70,000 ($30,000) Hawk $60,000 $40,000 $20,000 Nightingale $35,000 $30,000 $30,000 Part 1 Instructions: Compute the expected value for each alternative. What is the best option for the company?