Concept explainers
Concept introduction:
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
To indicate:
If the company should add decoration to Rosa umbrella
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Managerial Accounting
- Making outsourcing decisions Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit: Another company has offered to sell Cool Systems the switch for $15.00 per unit. If Cool Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.</p><p>Prepare an outsourcing analysis to determine whether Cool Systems should make or buy the switch.arrow_forwardLockrite Security Company manufacturers home alarms. Currently, it is manufacturing one of its components at a total cost of $40, which includes fixed costs of $13 per unit. An outside provider of this component has offered to sell Lockrite the component for $29. Provide a differential analysis of the outside purchase proposal. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Make Component (Alternative 1) or Buy Component (Alternative 2) MakeComponent(Alternative 1) BuyComponent(Alternative 2) DifferentialEffects(Alternative 2) Unit costs: Purchase price Variable costs Fixed costs Total unit costs $arrow_forwardThe Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier? Fixed overhead cost that can be eliminated if the bowls are purchased from the outside supplier The variable selling cost of the Snack Buster A) Yes Yes B) Yes No C) No Yes D) No No Multiple Choice Choice A Choice B Choice C Choice Darrow_forward
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- Glide Behind Corporation manufactures and sells small cargo trailers. The Wheel Division creates parts that are both sold externally and transferred internally to the Assembly Division. Variable production costs of wheel set #102 are $80, and each set sells externally for $150. What would you recommend as the internal transfer price from the Wheel Division to the Assembly Division if a competitive external market exists for wheel set #102? Would your answer change if there were no external market this component? Why? What would the transfer price be if upper management required cost plus 25 percent as the transfer price?arrow_forwardhow can the changes below affect Mirabel’s overall cost structure. For those changes that are controllable, make a recommendation considering the uncontrollable cost changes. Be certain to consider not only the company’s break-even point, but also the desired margin of safety. If Mirabel purchases the new equipment for $1,200,000, it will increase fixed costs by 10% but will decrease the variable cost per unit for all 3 models by 5%. If Mirabel invests the additional $650,000 in fixed marketing expenses, sales of the Model 301 are expected to increase by 8%. If the projection is that sales will increase by 10% in the coming year. The sales volume remains fixed but there is a 5% increase in variable expenses (materials cost) for the Model 101 and 301, and a 10% increase in variable expenses for Model 201.arrow_forwardTennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of thethree models: The company is considering lowering the price of Model A to $27 in an effort toincrease the number of units sold. Based on the results of price changes that havebeen instituted in the past, Tennis Products’ chief economist estimates the arc priceelasticity of demand to be 2.5. Furthermore, she estimates the arc cross elasticity ofdemand between Model A and Model B to be approximately 0.5 and between ModelA and Model C to be approximately 0.2. Variable costs per unit are not expected tochange over the anticipated changes in volume.a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contributionmargin of Model A. Based on this analysis, should the firm lower the price ofModel A?b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contributionmargin for the entire…arrow_forward
- Pricing Williams Inc. produces a single product, a part used in the manufacture of automobiletransmissions. Known for its quality and performance, the part is sold to luxury auto manufacturersaround the world. Because this is a quality product, Williams has some flexibility in pricing the part.The firm calculates the price using a variety of pricing methods and then chooses the final price based onthat information and other strategic information. A summary of the key cost information follows. Williamsexpects to manufacture and sell 50,000 parts in the coming year. While the demand for Williams’s parthas been growing in the past 2 years, management is not only aware of the cyclical nature of the automobile industry, but also concerned about market share and profits during the industry’s current downturn.[LO 13-3][LO 13-4]Required (round prices to 4 decimal places)1. Determine the price for the part using a markup of 45% of full manufacturing cost.2. Determine the price for the part…arrow_forwardBigdeal Corporation manufactures paper and paper products and istrying to decide whether to purchase Smalltek Company. Smalltek has developed a process for manufacturing boxes that can replace containers that use fluorocarbons for expelling a liquid product. The price may be as high as $45 million. Bigdeal prefers to buy Smalltek and integrate its products while leaving the Smalltek management in charge of day-to-dayoperations. A major consideration is the efficiency and effectiveness of Smalltek’s operations. Bigdeal wants to obtain a report on the operational efficiency and effectiveness of the Smalltek sales, production, and research and development departments.Required:Who can Bigdeal engage to produce the report resulting from this operational audit? Several possibilities exist. Are there any particular advantages or disadvantages in choosing from among them?arrow_forwardOuzts Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below: Alternative A Alternative B Materials costs $ 49,000 $ 64,700 Processing costs $ 44,900 $ 44,900 Equipment rental $ 15,500 $ 15,500 Occupancy costs $ 17,400 $ 26,100 What is the financial advantage (disadvantage) of Alternative B over Alternative A? Garrison_16e_Rechecks_2019_10_10 Multiple Choice $126,800 $(24,400) $151,200 $(139,000)arrow_forward
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