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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:
The type of decision
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Chapter 12 Solutions
Bundle: Survey of Accounting, Loose-Leaf Version, 8th + CengageNOWv2, 1 term Printed Access Card
- Based on a cost-benefit analysis, management at First CommunityBank decided to contract with Technology Solutions, a local data center operator, tohost all of the bank’s financial reporting applications. To avoid the significant costsof developing and maintaining its own data center, First Community contracts withTechnology Solutions to provide IT server access in a highly secure, environmentallycontrolled data center facility owned by Technology Solutions. Similar to First Community,other businesses also contract with Technology Solutions to host applications at the samedata center.The bank is directly linked through highly secure telecommunication lines to the datacenter, which allows bank personnel to transmit data to and from the data center as if thedata center was owned by First Community. For a monthly fee, Technology Solutionssupports the server hardware in an environment with numerous backup controls in theevent power is lost or other hardware failures occur. Bank personnel…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_forwardCoast Corporation's research and development department has a a project to develop a new product which is expected to be very profitable. However, this very expensive product requires approval from the company's controller, J.Davis. Since the corporate profits have been decreasing lately, Davis hesitates to approve a project that will incur significant expenses that cannot be capitalized. To overcome this problem, he's thinking about hiring a firm to develop this product and purchasing the patent of the product from this firm. w wwn wwwww Required: a. Why doesn't Davis prefer producing the product internally, and what are the ethical issues in this situation. b. What would you do if you were in Davis's place? ww n ww www wwwwarrow_forward
- Ahorita Company manufactures wireless transponders for satellite applications. Ahorita has recently acquired Zelltech Company which is primarily known for its software communications development, but also manufactures a specialty transponder under the trade name “Z-Tech” that competes with one of Ahorita’s products. Ahorita will now discontinue Z-Tech and projects that its own product line will see a market share increase. Nonetheless, Ahorita’s management will maintain the rights to the Z-Tech trade name as a defensive intangible asset to prevent its use by competitors, despite the fact that its highest and best use would be to sell the trade name. Ahorita estimates that the trade name has an internal value of $1.5 million, but if sold would yield $2 million. a. How does the FASB ASC glossary define a defensive intangible asset? b. According to ASC Topi 805 Business Combinations, what is the measurement principle that an acquirer should follow in recording identifiable assets…arrow_forwardAhorita Company manufactures wireless transponders for satellite applications. Ahorita has recently acquired Zelltech Company which is primarily known for its software communications development, but also manufactures a specialty transponder under the trade name “Z-Tech” that competes with one of Ahorita’s products. Ahorita will now discontinue Z-Tech and projects that its own product line will see a market share increase. Nonetheless, Ahorita’s management will maintain the rights to the Z-Tech trade name as a defensive intangible asset to prevent its use by competitors, despite the fact that its highest and best use would be to sell the trade name. Ahorita estimates that the trade name has an internal value of $1.5 million, but if sold would yield $2 million. Answer the following with supporting citations from FASB ASC a. How does the FASB ASC glossary define a defensive intangible asset? b. According to ASC Topi 805 Business Combinations, what is the measurement principle…arrow_forward. Refresh Resorts, Inc., operates health spas in Key West, Florida; Phoenix, Arizona; and Carmel, California. The Key West spa was the company’s first and opened in 1991. The Phoenix spa opened in 2004, and the Carmel spa opened in 2013. Refresh Resorts has previously evaluated divisions based on RI, but the company is considering changing to an EVA approach. All spas are assumed to face similar risks. Data for 2017 are: Q. Why might Refresh Resorts want to use EVA instead of RI for evaluating the performance of the three spas?arrow_forward
- Ahorita Company manufactures wireless transponders for satellite applications. Ahorita has recently acquired Zelltech Company, which is primarily known for its software communications development but also manufactures a specialty transponder under the trade name “Z-Tech” that competes with one of Ahorita’s products. Ahorita will now discontinue Z-Tech and projects that its own product line will see a market share increase. Nonetheless, Ahorita’s management will maintain the rights to the Z-Tech trade name as a defensive intangible asset to prevent its use by competitors, despite the fact that its high-est and best use would be to sell the trade name. Ahorita estimates that the trade name has an internal value of $1.5 million, but if sold would yield $2 million. Answer the following with supporting citations from the FASB ASC:a. How does the FASB ASC Glossary define a defensive intangible asset?b. According to ASC Topic 805, “Business Combinations,” what is the measurement principle…arrow_forwardH-Robotic Incorporated (HRI), a world leader in the robotics industry, produces a line of industrial robots and peripheral equipment that performs many routine assembly-line tasks. However, increased competition, particularly from Japanese firms, has caused HRI's management to be concerned about the company's growth potential in the future. HRI's research and development department have been applying the industrial robot technology to develop a line of household robots. The household robot is designed to function as a maid, mainlyperforming such tasks as vacuuming floors and carpets. This effort has nowreached the stage where a decision on whether to go forward with production must be made. The engineering department has estimated that the firm would need a new manufacturing plant with the following construction schedule: The plant would require a 35-acre site, and HRI currently has an option to purchase a suitable tract of land for $2.5 million. The building construction would begin…arrow_forwardImagine Industries, is a multinational firm that designs and produces tourist merchandise for major destinations worldwide. The company's board of directors is meeting to discuss changes that might be needed in the company's operations. At the end of the meeting, the board plans to examine Imagine industries' company issues on ability to produce enough output, new production process the company could use to create its product and issues relating to selection of a new location for production operations. b. Proposed to the board of directors of Imagine Industries, any TWO (2) potential ways to finance their business operations.arrow_forward
- Hardy Limited has undertaken research into launching a new product which will take it into a new market area. Hardy feels it has expanded its existing operation to its maximum potential, and it is the market leader in its existing field. The proposed new product would offer new opportunities and, although there is strong competition in its field already, the management feel it can use its existing brand name to break into this product line. The new product is in car cleaning accessories, but will offer items in a single package not currently available. The management believe that,although the proposed product may be relatively short lived, the penetration of new markets is worthwhile as long as the product does not make a loss. Details of the project are as follows: • Market research costs incurred to date amount to £250,000 • Investment in plant at the start: £2,900,000. At the end of the product's life the plant will have a disposal value of £80,000 . The project is estimated to have…arrow_forward. Refresh Resorts, Inc., operates health spas in Key West, Florida; Phoenix, Arizona; and Carmel, California. The Key West spa was the company’s first and opened in 1991. The Phoenix spa opened in 2004, and the Carmel spa opened in 2013. Refresh Resorts has previously evaluated divisions based on RI, but the company is considering changing to an EVA approach. All spas are assumed to face similar risks. Data for 2017 are: Q.How does the selection of asset measurement method affect goal congruence?arrow_forwardc. Courteney-Cox, Inc., is a Texas-based manufacturer and distributor of components and replacement parts for the auto, machinery, farm, and construction equipment industries. The company is presently funding a program of capital investment that is necessary to reduce production costs and thereby meet an onslaught of competition from low-cost suppliers located in Mexico and throughout Latin America. Courteney-Cox has a limited amount of capital available and must carefully weigh both the risks and potential rewards associated with alternative investments. In particular, the company seeks to weigh the advantages and disadvantages of a new investment project, project X, in light of two other recently adopted investment projects, project Y and project Z: Per Year Project X $10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 PV of Cash Flow @ 5% Investment Outlay in 2000: Calculate the minimum certainty equivalent…arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
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