Concept explainers
Concept introduction:
Managerial Decision:
Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager’s decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.
Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.
Two basic types of the relevant costs are as follows:
- Out-of-pocket costs
- Opportunity costs
The decision to sell the product as is or rework and sell
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MANAGERIAL ACCOUNTING FUND. W/CONNECT
- Varto Company has 7,000 units of its product in inventory that it produced last year at a cost of $154,000 This year's model is better than last year's, and the 7,000 units cannot be sold at last year's normal selling price of 535 each. Varto has two alternatives for these units: (1) They can be sold as is to a wholesaler for $5 6,000 or (2) they can be processed further at an additional cost of $125,000 and then sold for $175,000. (a) Prepare a sell as is or process further analysis of income effects. (b) Should Varto sell the products as is or process further and then sell them? \table[(a) Sell or Process Analysis, Sell As is, Process Further). (Revenue..]. [Costs, Income..].[..],[Incremental income (loss) to sell as is..].[..], [(b) The company should...]]arrow_forwardIT Company has 15,000 units in inventory that had a production cost of P3 per unit. These units cannot be sold through normal channels due to a significant technology change. These units could be reworked at a total cost of P23,000 and sold for P28,000. Another alternative is to sell the units to a junk dealer for P8,500. The relevant cost for IT Company to consider in making its decision is A.P45,000 of original product costs B.P23,000 for reworking the units C.P68,000 for reworking the units D.P28,000 for selling the units to the junk dealerarrow_forwardKim Yin Company has 15,000 units in inventory that had a production cost of $3 per unit. These units cannot be sold through normal channels due to a significant technology change. These units could be reworked at a total cost of $23,000and sold for $28,000. Another alternative is to sell the units to a junk dealer for $8,500. By how much will they be better off?arrow_forward
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- Allegiance, Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $45,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $23,000. There the goods could be sold for $80,000. What alternative is more desirable and what is the relevant cost for that alternative?arrow_forwardThe Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 95,000 units but plans to produce and sell only 65,000 in the coming year. The normal sale price is $16 per unit. Unit cost information is as follows: Direct materials Direct labor Variable overhead Fixed overhead. Total In addition, assume that the new customer also wants to have its company logo affixed to each koozie using a label. Cool Can would have to purchase a special logo labeling machine that will cost $12,000 The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct materials of $0.20 $3.10 2.50 1.15 1.00 $8.55…arrow_forwardSo Hot Ltd has 5,000 units in inventory that cost $1.50 per unit to produce. Due to changing technology, the sales department is having difficulty selling the product. It will cost $2,000 to scrap the units. What is the minimum price for which So Hot should sell these units?arrow_forward
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