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 make or buy the product
Want to see the full answer?
Check out a sample textbook solutionChapter 10 Solutions
MANAGERIAL ACCOUNTING FUND. W/CONNECT
- Velstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. SO what is the answerarrow_forwardVelstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. A business has approached Velstrom Ltd to offer £22,000 a year to sublet the released factory space. What will be the relevant benefit of releasing the factory space?arrow_forwardRequired : i) List the alternatives facing Zee Manufacturing with respect to production of component S6 . ii) List the relevant costs for each alternative if Zee decides to purchase the component from Bryan . Predict whether the operating income will increase or decrease and better alternatives . b) Refer to the information for Zee Manufacturing above . Assume that 75 % of Zee Manufacturing's fixed overhead for component S6 would be eliminated if that component were no longer produced . Required : If Zee decides to purchase the component from Bryan , predict whether the operating income will increase or decrease and propose the better alternatives .arrow_forward
- Sheffield Corp. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $27 and Sheffield would sell it for $62. The cost to assemble the product is estimated at $19 per unit and the company believes the market would support a price of $66 on the assembled unit. What decision should Sheffield make and why? O Process further because the company will be better off by $16 per unit. O Sell before assembly because the company will be better off by $15 per unit. O Sell before assembly because the company will be better off by $4 per unit. O Process further because the company will be better off by $12 per unit.arrow_forwardFor the next 2 items. Markgil Corp. manufactures a product that yields the by-product "Yum". The only costs associated with Yum are selling costs of P.10 for each unit sold. Abel accounts for sales of Yum by deducting Yum's separable costs from Yum's sales, and then deducting this net amount from the major product's cost of goods sold. Yum's sales were 100,000 units at P1.00 each. If Markgil changes its method of accounting for Yum's sales by showing the net amount as additional sales revenue, then Markgil's gross margin would * a. Increase by P90,000 b. Decrease by P90,000 c. Increase by P100,000 d. Increase by P100,000 e. Be unaffected If Markgil changes its method of accounting for Yum's sales by showing the net amount as other income, then Markgil's gross margin would * a. Increase by P90,000 b. Decrease by P90,000 c. Increase by P100,000 d. Increase by P110,000 e. Be unaffectedarrow_forwardMarigold Corp. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $27 and Marigold would sell it for $60. The cost to assemble the product is estimated at $13 per unit and the company believes the market would support a price of $64 on the assembled unit. What decision should Marigold make and why? Sell before assembly because the company will be better off by $9 per unit. Sell before assembly because the company will be better off by $4 per unit. Process further because the company will be better off by $18 per unit. Process further because the company will be better off by $20 per unit.arrow_forward
- James Company makes flanges for its main product of widgets. The cost of making each widget is as follows: Another company has offered to sell to James Company the flanges for a price of $19.00 each. Should James Company buy the flanges from the other company or continue to make the flanges themselves? Show your computations.arrow_forwardThe Pixels Corporation produces a component used in the manufacture of one of its best-selling products. The costs associated with the production of 10,000 units of this component are presented in the table above. The PCAOB Corp. offered to sell Pixels 10,000 units of the same part at a price of $36 per unit. Assume that Pixels has no alternative use for the factory facilities that would be released. Based on all of the information above, should Pixels manufacture their own part or outsource to PCAOB? Note that if you agree to outsource, you would save $60,000 in indirect fixed costs. Direct Materials $90,000 Direct Manufacturing Labor $130,000 Variable Manufacturing Overhead $60,000 Fixed Manufacturing Overhead $140,000 Total Costs $420,000 a. Buy the part from PCAOB because you save $6 per unit b. Manufacture the part because it saves $6 per unit c. Make the part because you save $2 per unit d. Buy the part from PCAOB because you save $60,000arrow_forwardVaughn Manufacturing is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $65 and Vaughn Manufacturing would sell it for $145. The cost to assemble the product is estimated at $28 per unit and Vaughn Manufacturing believes the market would support a price of $178 on the assembled unit. What is the correct decision using the sell or process further decision rule and why? Process further because profits will be greater by $33 per unit. Sell before assembly because profits will be greater by $33 per unit. Sell before assembly because profits will be greater by $28 per unit. O Process further because profits will be greater by $5 per unit. eTextbook and Media Save for Later Attempts: 2 of 3 used Submit Answerarrow_forward
- Crane Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $60 and Crane Company would sell it for $135. The cost to assemble the product is estimated at $20 p unit and Crane Company believes the market would support a price of $167 on the assembled unit. What is the correct decisio using the sell or process further decision rule? O Process further, the company will be better off by $32 per unit. O Sell before assembly, the company will be better off by $ per unit. O Sell before assembly, the company will be better off by $20 per unit. O Process further, the company will be better off by $12 per unit. Save for Later Attempts: 0 of 1 used Submit Answerarrow_forwardA and Z are two divisions in a company. Division A makes two products, G and H; G is sold outside the company for £176, while product H is only sold to Division Z at a transfer price of £176. The standard variable costs of producing a unit of H is £140 and a unit of H uses exactly the same resources in Division A s a unit of product G. Division Z has received an offer from another company to supply a substitute for product H at a price of £152 per unit. If Division A can sell externally as much as it can produce of G, what is the impact on profits if Z accepts the offer? Division Z Overall company A) increase. increase B) increase decrease C) decrease increase D) decrease decreasearrow_forwardA and Z are two divisions in a company. Division A makes two products, G and H; G is sold outside the company for £176, while product H is only sold to Division Z at a transfer price of £176. The standard variable costs of producing a unit of H is £140 and a unit of H uses exactly the same resources in Division A s a unit of product G. Division Z has received an offer from another company to supply a substitute for product H at a price of £152 per unit. If Division A cannot increase its external sales of G, what is the impact on profits if Z accepts the offer? Division A Overall company A) increase increase B) increase decrease C) decrease increase D) decrease decreasearrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education