Solution manual cost management measuring monitoring and motivating performance 1st by wolcott ch04

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter Relevant Costs for Nonroutine Operating Decisions LEARNING OBJECTIVES Chapter addresses the following questions: Q1 Q2 Q3 Q4 Q5 Q6 Q7 What is the process for making nonroutine operating decisions? How are decisions made to accept, reject, and price special orders? How are decisions made to keep or drop products, segments, or whole businesses? How are decisions made to insource or outsource an activity (make or buy)? How are decisions made for product emphasis and constrained resources? What qualitative factors are important to nonroutine operating decisions? What limitations and uncertainties should be considered when making nonroutine operating decisions? These learning questions (Q1 through Q7) are cross-referenced in the textbook to individual exercises and problems COMPLEXITY SYMBOLS The textbook uses a coding system to identify the complexity of individual requirements in the exercises and problems Questions Having a Single Correct Answer: No Symbol This question requires students to recall or apply knowledge as shown in the textbook This question requires students to extend knowledge beyond the applications e shown in the textbook Open-ended questions are coded according to the skills described in Steps for Better Thinking (Exhibit 1.10):  Step skills (Identifying)  Step skills (Exploring)  Step skills (Prioritizing)  Step skills (Envisioning) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 4-2 Cost Management QUESTIONS 4.1 Future costs are relevant only if they differ between the decision alternatives 4.2 The magazine companies would want to cover their variable costs, but beyond that they are assuming they can gain readership by letting students subscribe at a discount Then when the students graduate, they will continue to subscribe at the full rate, increasing the organization’s profits and readership The magazines also earn higher advertising fees with higher readership, so they receive additional revenue from student subscriptions In addition, it is unlikely that many students would subscribe without the discounts, so the companies are not replacing their regular business 4.3 If variable cost*40% is greater than or equal to the contribution margin on products for which capacity is currently used, take the special order If the contribution margin on current products is higher, not take the special order 4.4 Yes, it applies The decision rule is to accept a special order as long as it covers at least the variable costs if it does not replace regular business It is usually presumed that the audience that is attracted to afternoon shows is different from the audience that is attracted to regular times The pricing decision has to with the fact that most costs are fixed, rather than variable Weekend internet specials for the airlines are similar Hotels and restaurants in resort areas often reduce prices during the off-season 4.5 Constraints can be relaxed a number of ways If capacity is constrained, it can be expanded by purchasing new equipment, space, and hiring more labor If there is a bottleneck, it can be relaxed by using it during all hours of operation, inspecting units before they go through the bottleneck to be certain only good units are produced by it, and by offloading demand to other machines or processes if possible Material constraints are relaxed by changing the product design or by purchasing more materials 4.6 Quantitative information is data that can be used in a mathematical analysis Qualitative information is information that is not numerical, that is, it cannot be quantified easily 4.7 Possible quantitative factors include the incremental cost of growing bedding plants and the cost to purchase the plants from someone else Possible qualitative factors include: Timeliness of delivery Quality of bedding plants Whether the bedding plants are appropriate for this climate Whether Grover can get the quantities of plants needed Whether there are other wholesale nurseries to purchase from if this relationship does not work well 4.8 Qualitative factors that affect the decision to outsource include quality and timeliness of delivery If the supplier market is competitive, it may be easy to ensure high quality because the organization can switch vendors when quality drops If only one or two To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 4: Relevant Costs for Nonroutine Operating Decisions 4-3 vendors supply the product or service, it may be difficult to ensure high quality Similar issues arise with ensuring timely deliveries of products or services that are outsourced 4.9 Managers examine the contribution margin per product, or per constrained resource to determine the products that should be emphasized If there are no constraints, then the product with the highest contribution margin should be emphasized The products can be rank-ordered and emphasized in that order If resources are limited, a linear program can be used to determine the optimal sales mix if more than one constraint exists If only one resource is constrained, the product with the highest contribution margin under that constraint should be emphasized 4.10 Labor hours are the constraint for an accounting firm during tax time, and especially professional labor Labor constraints can be relaxed by hiring more people, or by using computerized tax software to increase efficiency Some tasks, such as opening mail, filing, and entering data into programs, can be performed by temporary labor or relatively unskilled labor But some tasks require professional labor, which may be the binding constraint at times Many accounting professionals work very long hours during tax season to relax these types of constraints 4.11 A special order decision for a retail clothing factory might be uniforms for a ball team It’s likely that the order would not replace regular business, unless they routinely sell uniforms Another short-term decision would be whether to keep or drop a particular line of clothing, such as a line of jeans with a special treatment to make them look worn after the popularity of this style of jeans wanes Another short-term decision would be whether to outsource administrative functions, such as payroll, or factory functions, such as sewing certain garments If resources are constrained, product emphasis decisions under constrained resources need to be made If resources are not constrained, products need to be identified for emphasizing through advertising or promotions 4.12 Considerations for special orders are whether the order would replace regular business, whether there is ample capacity, whether other customers might learn about a special pricing arrangement and demand the same price, and whether the price is above the variable cost plus any relevant fixed costs To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 4-4 Cost Management EXERCISES 4.13 Yoklic Corporation A The relevant information for this problem includes the variable costs to make and the purchase price to buy Cost to make ($4.00 + $30.00 + $15.00) Cost to buy Savings if decision is to make $49 55 $ B Yes, this new information changes the decision The cost to make is increased by the amount of fixed costs that will be eliminated if the part is purchased, which is $10 ($50,000/5,000) per unit Cost to make ($4.00 + $30.00 + $15.00 + $10) Cost to buy Savings if decision is to buy $59 55 $14 C Two qualitative factors would be very important for Yoklic First, delivery times need to be reliable Delivery delays can disrupt Yoklic’s ability to deliver products to its customers on a timely basis In addition, quality is important Yoklic needs to be assured that the quality will meet its needs 4.14 Johnson and Sons A Constrained resource problem The manager needs to decide whether or not to buy more juice from a neighbor B The general rule is that managers can pay what they pay now plus up to the entire contribution margin per constrained resource to relax a constraint Therefore, the manager is willing to pay up to $3.00 ($2.50 contribution margin plus $0.50 variable cost) C If the company can supply its total demand this year, it is likely to affect its demand next year If it cannot fill orders this year, customers may find another supplier D Yes, quality is a concern If the neighbor’s juice is lower quality, customers will be disappointed and may not come back If the neighbor’s juice is much higher quality, customers may be disappointed later, and not come back Customers may even seek out the true supplier of this higher quality juice E The timeliness of delivery could be a factor, and the reliability of the supplier is important To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 4: Relevant Costs for Nonroutine Operating Decisions 4-5 4.15 Snowbird Snowboards [Note: This problem requires application of knowledge from Chapter 3.] A It is first necessary to categorize costs and create a cost function: Fixed Variable production Fixed production Variable selling and administration Fixed selling and administration Total Variable $60,000 $25,000 10,000 35,000 $60,000 $70,000/500 boards = $140 each Selling price per snowboard = $150,000/500 = $300 CVP calculation in units: $30,000 = ($300 - $140)*Q - $60,000 $160*Q = $90,000 Q = 563 snowboard B Managers are willing to pay what they pay now ($85) plus up to the entire contribution margin ($160), or $245 to buy more snowboards C The incremental profit for 200 snowboards would be zero because the company has paid its entire contribution margin to buy additional snowboards 4.16 Mrs Meadows Target function: = $50*Chip Dip + $40*Soft Chunk Constraints: Mixing: 20*Chip Dip + 30*Soft Chunk < 4,000 minutes Baking: 40*Chip Dip + 20*Soft Chunk< 6,000 minutes Dipping: 15*Chip Dip < 2,000 minutes To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 4-6 Cost Management The following reports are produced from Microsoft Excel Solver: Answer Report Target Cell (Max) Cell $A$6 Name Original Value Target Function Final Value 8250 Adjustable Cells Cell Name Original Value Final Value $A$3 Dip 125 $B$3 Soft 50 Constraints Cell Name Cell Value Formula Status Slack $B$9 Mixing 4000 $B$9