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 process further
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MANAGERIAL ACCOUNTING FUND. W/CONNECT
- Lander Parts, Inc., produces various automobile parts. In one plant, Lander has a manufacturing cell with the theoretical capability to produce 450,000 fuel pumps per quarter. The conversion cost per quarter is 9,000,000. There are 150,000 production hours available within the cell per quarter. Required: 1. Compute the theoretical velocity (per hour) and the theoretical cycle time (minutes per unit produced). 2. Compute the ideal amount of conversion cost that will be assigned per subassembly. 3. Suppose the actual time required to produce a fuel pump is 40 minutes. Compute the amount of conversion cost actually assigned to each unit produced. What happens to product cost if the time to produce a unit is decreased to 25 minutes? How can a firm encourage managers to reduce cycle time? Finally, discuss how this approach to assigning conversion cost can improve delivery time. 4. Assuming the actual time to produce one fuel pump is 40 minutes, calculate MCE. How much non-value-added time is being used? How much is it costing per unit? 5. Cycle time, velocity, MCE, conversion cost per unit (theoretical conversion rate actual conversion time), and non-value-added costs are all measures of performance for the cell process. Discuss the incentives provided by these measures.arrow_forwardCobe Company has already manufactured 18,000 units of Product A at a cost of $20 per unit. The 18,000 units can be sold at this stage for $480,000. Alternatively, the units can be further processed at a $260,000 total additional cost and be converted into 5,600 units of Product B and 11,000 units of Product C. Per unit selling price for Product B is $105 and for Product C is $53. 1. Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not? Sales Relevant costs: Total relevant costs Income (loss) Sell as is Incremental net income (or loss) if processed further The company should Process Furtherarrow_forwardCobe Company has already manufactured 18,000 units of Product A at a cost of $15 per unit. The 18,000 units can be sold at this stage for $410,000. Alternatively, the units can be further processed at a $250,000 total additional cost and be converted into 5,800 units of Product B and 11,100 units of Product C. Per unit selling price for Product B is $104 and for Product C is $60. 1. Prepare an analysis that shows whether the 18,000 units of Product A should be processed further or not? Sales Relevant costs: Total relevant costs Income (loss) Sell as is Incremental net income (or loss) if processed further The company should Process Further Oarrow_forward
- Zycon has produced 10,000 units of partially finished Product A. These units cost $15,000 to produce, and they can be sold to another manufacturer for $20,000. Instead, Zycon can process the units further and produce finished Products X, Y, and Z. Processing further will cost an additional $22,000 and will yield total revenues of $35,000. Place an X in the appropriate column to identify whether the item is relevant or irrelevant to the sell or process further decision.arrow_forwardCobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be processed further at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70. Should the 28,000 units of Product A be processed further or not?arrow_forwardZycon has produced 10,000 units of partially finished Product A. These units cost $15,000 to produce, and they can be sold to another manufacturer for $20,000. Instead, Zycon can process the units further and produce finished Products X, Y, and Z. Processing further will cost an additional $22,000 and will yield total revenues of $35,000. Place an X in the appropriate column to identify whether the item is relevant or irrelevant to the sell or process further decision. Item Relevant Not Relevant a. $15,000 cost already incurred to produce b. $20,000 selling price c. $22,000 additional processing costs d. $35,000 revenues from processingarrow_forward
- Gunston Processing produces two products, ALT-1 and ALT-2, from a batch using a single raw material, ALT-O. Both products require further processing before they be can be sold. A batch of ALT-1 can be sold for $153,000 after processing costs of $42,000. A batch of ALT-2 can be sold for $241,200 after further processing. The cost of ALT-O is $200,000 for a batch. Using the estimated net realizable value method, a joint cost of $120,000 was allocated to ALT-2 for a batch. Required: Compute the separable processing cost for a batch of ALT-2. Note: Do not round intermediate calculations. Processing costarrow_forwardGunston Processing produces two products, ALT-1 and ALT-2, from a batch using a single raw material, ALT-O. Both products require further processing before they be can be sold. A batch of ALT-1 can be sold for $150,000 after processing costs of $30,000. A batch of ALT-2 can be sold for $240,000 after further processing. The cost of ALT-0 is $200,000 for a batch. Using the estimated net realizable value method, a joint cost of $120,000 was allocated to ALT-2 for a batch. Required: Compute the separable processing cost for a batch of ALT-2. Processing cost hsarrow_forwardCarmen Co. can further process Product J to produce Product D. Product J is currently selling for $20 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $8.55 per pound to produce.arrow_forward
- Test Company produces two products from a common input: Product A and Product B. One batch of the common input yields 600 units of Product A and 200 units of Product B. The joint costs for one batch are $25,000. Product A can be sold at the split-off point for $80 per unit. Product B can be sold at the split-off point for $150 per unit. Alternatively, Product B can be processed into 120 units of Product C that will sell for $400 per unit. Additional process costs for one batch of Product C will be $5,500 Determine the increase (decrease) in income if Product B is processed further into Product C. Note: Give your answer using dollar signs and commas but not decimal points (cents) Give negative numbers in parentheses. Example: $12,345 or S(12,345)arrow_forwardA company has already incurred $5,000 of costs in producing 6,000 units of Product XY. Product XY can be sold as is for $15 per unit. Instead, the company could incur further processing costs of $8 per unit and sell the resulting product for $21 per unit. Should the company sell Product XY as is or process it further?arrow_forwardThe company believes that it can successfully sell the product for $45 a bottle. The company’s target operating income is 30% of revenue. Calculate the target full cost of producing the 400,000 units. Does the cost estimate meet the company’s requirements? Is value engineering needed?arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning