User Account

All Pages

Operating Decisions, Managerial Accounting

Assignment Help:
11.1 Process Solutions provides a computer-based document processing service. The accountant has produced the following analysis.
Standard Modified Advanced
Sales quantity 1,000 1,100 1,200
Selling price £5 £5 £6
Sales revenue 5,000 5,500 7,200
Labour hours 100 120 160
Labour cost @ £20/hour 2,000 2,400 3,200
Contribution 3,000 3,100 4,000
Contribution per unit sold £3 £2.82 £3.33

The Sales Manager, whose team is paid a commission on sales revenue prefers to sell the higher priced Advanced service. This is also the preferred service for the Accountant, although not for the same reason, as her argument is that the Advanced service is better because of the higher contribution per unit sold. The Operations Manager argues that the Advanced Service consumes more labour hours than the Standard or Modified services and as labour availability limits his ability to process work, this should also be taken into account. The Operations Manager prefers the Standard or Modified service as this provides greater ability to use his capacity more flexibly.

The General Manager has asked for your advice in relation to this disagreement within the management team.

11.2 Cowboy Constructions employs a full-time driver and incurs costs for a vehicle to deliver paperwork between each of their building sites. Select Couriers has offered to carry out the work to the same standard of service for a fixed sum of £2,000 per month. Cowboy’s annual costs are currently:

Salary and oncosts of driver £16,000
Salary and oncosts of builder who
covers for sickness and annual leave
absences of driver £2,800
Depreciation of vehicle £2,500
Road tax, insurance & servicing £1,000
Fuel £3,000
Total £25,300

If Cowboy uses Select Couriers, it will sell the vehicle for £2,000, and the driver’s employment will be terminated without any redundancy payment. The builder who covers for sickness and leave of the driver is currently replaced by casual labour which costs £3,500.

What are the relevant costs involved in this decision? Should Cowboy sub-contract its delivery requirements to Select? What considerations are there in making this decision?

11.3 A spare parts supplier is thinking of building a car from the parts he has in his yard. He does not expect any reward for his labour but wants to know what costs he should include for the materials. He has provided the following information:
• A chassis was bought for £100 and has no scrap value.
• A reconditioned engine will cost £375. However, an old engine was bought for £50. It can either be sold in its present condition for £225 or additional parts costing £250 could be bought to bring to bring the engine to an equivalent standard to the reconditioned one.
• Tyres costing £180 need to be purchased.
• Paint is in stock at a cost of £60 but it will need to be replaced at its current price of £70.


11.4 Maximus Company has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and unit costs for three models of one of its product lines are as follows.

Plain model Regular model Super model
Selling price £30.00 £32.50 £40.00
Direct material £9.00 £10.00 £9.50
Direct labour (@ £5 per hour) £5.00 £7.50 £10.00
Variable overhead £4.00 £6.00 £8.00
Fixed overhead £8.00 £7.50 £7.50

Variable overhead is applied on the basis of direct labour dollars, while fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional production of any model of the product line.
a. If Maximus Company has excess machine capacity and can add more labour as needed (i.e. neither machine capacity nor labour is a constraint), which product is the most attractive to produce? Provide calculations and reasons to support your answer.
b. If Maximus Company has excess machine capacity but a limited amount of labour time available, to which product or products should the excess production capacity be devoted? Provide calculations and reasons to support your answer.

Related Discussions:- Operating Decisions

Determine the internal factors of pricing decision, Determine the Internal ...

Determine the Internal factors of pricing decision 1) Organization factor: pricing decision occur on two level in the organization. Overall price strategy is dealt with by to

State overhead expenses, State overhead expenses It is to be noted tha...

State overhead expenses It is to be noted that the term overheard has a wider meaning than the term indirect expanses. Overheads include the cost of the indirect material and

Determine the creditors turnover ratio, Creditors turnover ratio ( or payab...

Creditors turnover ratio ( or payables turnover ratio) Meaning: this ratio establishes a relation ship between net credit purchases and average trade creditors. Objective

Selective inventory management, Selective Inventory Management The inve...

Selective Inventory Management The inventory of an industrial firm generally comprises thousands of items with diverse prices, usage and lead time, as well as procurement and/o

Cash forecasting and budgeting, A cash budget is one of the main important ...

A cash budget is one of the main important devices to plan and control cash payments and receipts. In preparation of a cash budget the subsequent points are considered. Cred

What are the disadvantages of standard costing, Disadvantages of standard c...

Disadvantages of standard costing 1) Difficulty in setting standards: setting of standards in practice extremely difficult and complicated task. First it is not possible to f

Decision making, A local government authority owns and operates a leisure c...

A local government authority owns and operates a leisure centre with numerous sporting facilities, residential accommodation, a cafeteria and a sports shop. The summer season lasts

Draw a time line for the assembly department, Computing equivalents units a...

Computing equivalents units and assigning costs to completed units and ending work in process; no beginning inventory or cost transferred in (30 -45min) Sue Electronics makes CD

How can we draw a break even chart, How can we draw a break even chart ...

How can we draw a break even chart Under this method the variable cost line is drawn first and then fixed cost line is drawn over and parallel to the variable cost line. The fi

Management, Discuss the different roles played by the qualitative and quant...

Discuss the different roles played by the qualitative and quantitative approaches to managerial decision making

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd