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 special offer should be accepted or not

Question

Want to see the full answer?

Answer 1

Question

Chapter 7, Problem 8.2GBP

To determine

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 special offer should be accepted or not

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 60% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back Porch most likely bid on this long-term order? A. $86.40 per unit B. $345.60 per unit C. $432.00 per unit D. $162.00 per unit

Cabin Creek Company is considering adding a new line of kitchen cabinets. The company’s accountant provided the following estimated data for these cabinets: Annual sales 800 units Selling price per unit $ 3,660 Variable manufacturing costs per unit $ 1,660 Variable selling costs per unit $ 510 Incremental fixed costs per year: Manufacturing $ 491,400 Selling $ 71,000 Allocated common costs per year: Manufacturing $ 96,000 Selling and administrative $ 128,000 If the kitchen cabinets are added as a new product line, the company expects that the contribution margin earned from selling its other products will decrease by $232,000 per year. Required: What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets? What is the lowest selling price per unit that could be charged for the cabinets and still make it economically desirable for the company to add the new product line?

Mirabella Beauty manufactures and sells a face cream to small specialty stores in the greater Los Angeles area. It presents the monthly operating income statement shown here to George Lupe, a potential investor in the business. Help Mr. Lupe understand Mirabella Beauty's cost structure. Mirabella Beauty Operating Income Statement, June 2020 Units sold $10,000 Revenues $200,000 Cost of goods sold Variable manufacturing costs $70,000 Fixed manufacturing costs $32,900 Total 102,900 Gross margin 97,100 Operating costs Variable marketing costs $58,000 Fixed marketing and administrative costs 17,500 Total operating costs 75,500 Operating income $21,600 Recast the income statement to emphasize contribution margin. Calculate the contribution margin percentage and breakeven point in units and revenues for June2020. What is the margin of safety (in units) for June 2020? If sales in June were only 8,500 units and Mirabella's tax rate is 30%, calculate its net income.