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 production priority ranking for products
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Managerial Accounting
- Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?arrow_forwardBurger Office Equipment produces two types of desks, standard and deluxe. Deluxe desks have oak tops and more expensive hardware and require additional time for finishing and polishing. After reviewing the hardware and labor required along with the profit for each model, Burger Office Equipment found the following linear optimization model for profit, where S is the number of standard desks produced and D is the number of deluxe desks produced. Implement the linear optimization model on a spreadsheet and use Solver to find an optimal solution. Interpret the optimal solution, identify the binding constraints, and verify the values of the slack variables. Maximize Profit=240 S+350 D 65 S+45 D≤6000 20 D≤ 800 (Availability of pine) 9 S+18 D≤500 S≥0 and D≥0 (Availability of oak) (Availability of labor) Implement the linear optimization model and find an optimal solution. Interpret the optimal solution. The optimal solution is to produce standard desks and deluxe desks. This solution gives…arrow_forwardPerfect Furniture is a manufacturer of kitchen tables andchairs. Th e company is currently deciding between two newmethods for making kitchen tables. Th e fi rst process is estimatedto have a fi xed cost of $80,000 and a variable cost of $75 per unit.Th e second process is estimated to have a fi xed cost of $100,000and a variable cost of $60 per unit.(a) Graphically plot the total costs for both methods.Identify which ranges of product volume are best foreach method.(b) If the company produces 500 tables a year, which methodprovides a lower total cost?arrow_forward
- Stan Fawcett’s company is considering producing agear assembly that it now purchases from Salt Lake Supply, Inc.Salt Lake Supply charges $4 per unit, with a minimum order of3,000 units. Stan estimates that it will cost $15,000 to set up theprocess and then $1.82 per unit for labor and materials.a) Draw a graph illustrating the crossover (or indifference)point.b) Determine the number of units where either choice has thesame cost.arrow_forwardCordova manufactures three types of stained glass windows, cleverly named Products A, B, and C. Information about these products follows: Sales price Variable costs per unit Fixed costs per unit Required number of labor hours Product A Product B Product C Product A $50.00 16.40 6.00 2.00 15,000 units 10,000 units 6,000 units Product B $ 60.00 11.25 6.00 2.50 Cordova currently is limited to 60,000 labor hours per month. Cordova's marketing department has determined the following demand t for its products: Product C $ 90.00 24.40 6.00 4.00arrow_forwardThe jarvis corporation produces bucket loader assemblies for the tractor industry. The product has a long term life expectancy. Jarvis has a traditional manufacturing and inventory system. Jarvis is considering the installation of a just-in-time inventory system to improve its cost structure. In doing a full study using its manufacturing engineering team as well as consulting with industry JIT experts and the main vendors and suppliers of the components Jarvis uses to manufacture the bucket loader assemblies, the following incremental cost-benefit relevant information is available for analysis: The Jarvis cost of investment capital hurdle rate is 15%. One time cost to rearrange the shop floor to create the manufacturing cell workstations is $275,000. One time cost to retrain the existing workforce for the JIT required skills is $60,000. Anticipated defect reduction is 40%. Currently there is a cost of quality defect assessment listed as $150,000 per year. The setup time for…arrow_forward
- Tell what life-cycle cost management is and how it can be usedto maximize profits over a product's life cycle.Nico Parts, Inc., produces electronic products with short life cycles (of lessthan two years). Development has to be rapid, and the profitability of theproducts is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that postpurchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was $130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be $120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, CathyMcCourt. The following conversation was recorded:…arrow_forwardMaverick Inc, Is deciding on which supplier to choose for one of Its components, Suppliers have similar quallty but varying costs when It comes to ordering costs, commissions, and variable costs per unit. Maverick is equally Wikely to order 1000, 1200, 1400, or 1600 components this year, Orders come in a size of 100 components per order, so there will be multiple orders each year. Commissions are charged on the total purchase cost (i.e., order cost + varlable costs). Maverick has narrowed the choices to four possible suppliers with the following cost information: Cost per order $100.0 $125.0 $T10.0 $105.0 Cost per unit Commissions $10.00 $9.00 $7.00 $8.00 Witmore Ltd, Locke Ltd. 2.0% 2.0% 3.0% 2.5% Shepherd Ltd. Bushel Inc. Below is an incomplete payoff table: Units Ordered 1,600 $17,952.00 1,200 1,000 1,400 D. Supplier Witmore Ltd. $13,464.00 $14,637.00 $11,680.20 Locke Ltd. $10,455.00 F $10,011.60 $11,131.50 G. Shepherd Ltd. Bushel Inc. $9,276.25 $14,842.00 In the box below, enter…arrow_forwardThe Martin-Beck Company operates a plant in St. Louis with an annual capacity of 30,000 units. Product is shipped to regional distribution centers located in Boston, Atlanta, and Houston. Because of an anticipated increase in demand, Martin-Beck plans to increase capacity by constructing a new plant in one or more of the following cities: Detroit, Toledo, Denver, or Kansas City. The estimated annual fixed cost and the annual capacity for the four proposed plants are as follows: Proposed Plant Detroit Toledo Denver Kansas City $175,000 Annual Fixed Cost Annual Capacity 40,000 $300,000 $375,000 $500,000 10,000 20,000 30,000 The company's long-range planning group developed forecasts of the anticipated annual demand at the distribution centers as follows: Distribution Center Annual Demand Boston 30,000 Atlanta 20,000 Houston 20,000arrow_forward
- Tell what life-cycle cost management is and how it can be usedto maximize profits over a product's life cycle.Nico Parts, Inc., produces electronic products with short life cycles (of lessthan two years). Development has to be rapid, and the profitability of theproducts is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that postpurchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was $130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be $120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, CathyMcCourt. The following conversation was recorded:…arrow_forwardThe management of Hartman Company is trying to determine the amount of each of two products to produce over the coming planning period. The following information concerns labor availability, labor utilization, and product profitability: a. Develop a linear programming model of the Hartman Company problem. Solve the model to determine the optimal production quantities of products 1 and 2. b. In computing the profit contribution per unit, management does not deduct labor costs because they are considered fixed for the upcoming planning period. However, suppose that overtime can be scheduled in some of the departments. Which departments would you recommend scheduling for overtime? How much would you be willing to pay per hour of overtime in each department? c. Suppose that 10, 6, and 8 hours of overtime may be scheduled in departments A, B, and C, respectively. The cost per hour of overtime is 18 in department A, 22.50 in department B, and 12 in department C. Formulate a linear programming model that can be used to determine the optimal production quantities if overtime is made available. What are the optimal production quantities, and what is the revised total contribution to profit? How much overtime do you recommend using in each department? What is the increase in the total contribution to profit if overtime is used?arrow_forwardGumbrecht Company has the following departmental manufacturing layout for one of its plants: A consulting firm has recommended a value stream with the following manufacturing cell: Required: 1. Calculate the total time it takes to produce a batch of 20 units using the traditional departmental manufacturing layout. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. Assume the processing time of Casting is reduced to 9 minutes, while the times of the other processes stay the same. What is the production rate now, and how long will it take to produce a batch of 20 units if the cell is in a continuous production mode?arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning