-Solve the 4 questions attached in the word file called assignment 11.-I attached a ppt file that explains the chapter and has some examples.-Solve the questions using the same way the examples were solved.-The slides will help you and provide you with guidance. -This link is a pdf file for the chapter from the book, It could help you. https://nscpolteksby.ac.id/ebook/files/Ebook/Accounting/Cost%20Accounting%20(2012)/Chapter%2011%20-%20Decision%20Making%20and%20Relevant%20Information.pdf
-One of the files I attached is solutions for some questions thatyou will find in the pdf file, it could help you.
Q1: Direct materials $10 Direct labor 7 Variable manufacturing overhead 1 Fixed manufacturing overhead 8 Unit product cost $26 Tish Corporation produces a part used in the manufacture of one of its products. The unit product cost is $26, computed as follows: An outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each. The company estimates that 75% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Should Tish Corporation make or buy? Show your calculation! Q2: Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 10,000 cases of sauce each year but is currently only manufacturing and selling 9,000. The following costs relate to annual operations at 9,000 cases: Total Cost Variable manufacturing cost $126,000 Fixed manufacturing cost $45,000 Variable selling and administrative cost $18,000 Fixed selling and administrative cost $27,000 Gwinnett normally sells its sauce for $30 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 1,000 cases of sauce but only if they can get the sauce for $15 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit. Should Gwinnett accept this special order? Show your calculation! Q3: The management of Bayside Company is considering whether one of the departments in its retail stores should be eliminated. The contribution margin in the department is $150,000 per year. Fixed expenses allocated to the department are $130,000 per year. It is estimated that $120,000 of these fixed expenses will be eliminated if the department is discontinued. Part (a) Which costs are irrelevant to this decision? Part (b) If the department is eliminated, what will be the impact on the company’s overall net operating income? Q4: You have the following information related to XYZ Company: Selling price/unit VC/unit Machine-minute required Monthly demand Product1 $ 20 $ 15 1 1,000 units Product 2 $ 30 $ 10 2 1,500 units Product3 $ 26 $ 10 4 1,200 units Available capacity: 8,500 machine-minutes Required: What is the product mix that would maximize net operating income? Show your proof! (Hint: to show your proof, utilize the constrained resources based on the C.M per unit) 1 CHAPTER 11 © 2012 Pearson Prentice Hall. All rights reserved. Decision Making and Relevant Information * © 2012 Pearson Prentice Hall. All rights reserved. Decision Models A decision model is a formal method of making a choice, often involving both quantitative and qualitative analyses. Managers often use some variation of the five-step decision-making process. * © 2012 Pearson Prentice Hall. All rights reserved. Five-Step Decision-Making Process * Step 1: Obtain Information Step 5: Evaluate Performance Step 4: Implement The Decision Step 3: Choose An Alternative Step 2: Make Predictions About Future Costs Feedback © 2012 Pearson Prentice Hall. All rights reserved. Relevance Relevant information has two characteristics: It occurs in the future. It differs among the alternative courses of action. Relevant costs—expected future costs. Relevant revenues—expected future revenues. * © 2012 Pearson Prentice Hall. All rights reserved. Relevant Cost Illustration * © 2012 Pearson Prentice Hall. All rights reserved. Features of Relevant Information Past (historical) costs may be helpful as a basis for making predictions. However, past costs themselves are always irrelevant when making decisions. Different alternatives can be compared by examining differences in expected total future revenues and expected total future costs. Not all expected future revenues and expected future costs are relevant. Expected future revenues and expected future costs that do not differ among alternatives are irrelevant and, hence can be eliminated from the analysis. The key question is always, What difference will an action make? Appropriate weight must be given to qualitative factors and quantitative nonfinancial factors. * © 2012 Pearson Prentice Hall. All rights reserved. Sunk Costs Are Irrelevant in Decision Making Costs that have already occurred and can not be changed are classified as sunk costs. Sunk costs are excluded because they can not be changed by future actions. These are costs that were incurred in the past and are not recordable. * © 2012 Pearson Prentice Hall. All rights reserved. Types of Information Quantitative factors are outcomes that can be measured in numerical terms. Qualitative factors are outcomes that are difficult to measure accurately in numerical terms, such as satisfaction. Qualitative factors are just as important as quantitative factors even though they are difficult to measure. * © 2012 Pearson Prentice Hall. All rights reserved. Potential Problems with Relevant-Cost Analysis Avoid incorrect general assumptions about information, especially: “All variable costs are relevant and all fixed costs are irrelevant.” There are notable exceptions for both costs. * © 2012 Pearson Prentice Hall. All rights reserved. Terminology Incremental cost—the additional total cost incurred for an activity. Differential cost—the difference in total cost between two alternatives. Incremental revenue—the additional total revenue from an activity. Differential revenue—the difference in total revenue between two alternatives. * © 2012 Pearson Prentice Hall. All rights reserved. Types of Decisions One-time-only special orders Insourcing vs. outsourcing(make or buy) Product-mix Customer profitability Branch/segment: adding or discontinuing Equipment replacement * © 2012 Pearson Prentice Hall. All rights reserved. One-Time-Only Special Orders Accepting or rejecting special orders when there is idle production capacity and the special orders have no long-run implications. Decision rule: Does the special order generate additional operating income? Yes—accept No—reject Compares relevant revenues and relevant costs to determine profitability. * © 2012 Pearson Prentice Hall. All rights reserved. Special Orders Surf Gear, Inc., makes a single product whose normal selling price is $20 per unit. The following costs are collected: Variable costs: Manufacturing= $7.5/unit Marketing= $5/unit Fixed costs: Manufacturing= $135,000 Marketing= $60,000 A foreign distributor offers to purchase 5,000 units for $11 per unit. This is a one-time order that would not affect the company’s regular business. Annual capacity is 50,000 units, but Surf Gear, Inc., is currently producing and selling only 30,000 units. Assume the following information with respect to a special order opportunity for Jet, Inc. Should Jet accept the offer? © 2012 Pearson Prentice Hall. All rights reserved. Special Orders All costs would be unaffected by the special order except of the variable manufacturing cost. Conclusion: The variable manufacturing cost is the only relevant cost The incremental revenue is relevant revenue Should Surf Gear accept the offer? Assume the following information with respect to a special order opportunity for Jet, Inc. Should Jet accept the offer? © 2012 Pearson Prentice Hall. All rights reserved. Special Orders Surf Contribution Income Statement Without the Special OrderWith the Special OrderRelevant Amounts 30,000 units35,000 units5,000 units Revenue$600,000$655,000 $55,000 Variable Costs: Manufacturing 225,000 262,500 37,500 Marketing 150,000 150,000 Total Variable costs 375,000 412,500 37,500 Contribution Margin(C.M) 225,000 242,500 17,500 Fixed costs: Manufacturing 135,000 135,000 Marketing 60,000 60,000 Total fixed costs 195,000 195,000 Operating income $30,000 $47,500$17,500 Diff. $17,500 Diff. $17,500 Assume the following information with respect to a special order opportunity for Jet, Inc. Should Jet accept the offer? © 2012 Pearson Prentice Hall. All rights reserved. Make-Versus-Buy Decision (Insourcing vs. Outsourcing) Insourcing—producing goods or services within an organization. Outsourcing—purchasing goods or services from outside vendors. Also called the make-or-buy decision. Decision rule: Select the option that will provide the firm with the lowest cost, and therefore the highest profit. * © 2012 Pearson Prentice Hall. All rights reserved. Make-Versus-Buy Decision (Insourcing vs. Outsourcing) Qualitative Factors Nonquantitative factors may be extremely important in an evaluation process, yet do not show up directly in calculations: Quality requirements Reputation of outsourcer Employee morale Logistical considerations—distance from plant, and so on. * © 2012 Pearson Prentice Hall. All rights reserved. Make-Versus-Buy Decision Soho Company manufactures a two-in-one video system consisting of a DVD player and a digital media receiver. The following is the manufacturing cost for 250,000 units. for 250,000 unitsPer unit Direct Material$9,000,000$36 Direct manufacturing labor 2,500,000 10 Variable Manufacturing overhead 1,500,000 6 Mixed manufacturing costs of materials handling and setup Variable Fixed 1,250,000 750,000 5 3 Fixed manufacturing overhead costs of plant lease, insurance, and admin. 3,000,000 12 Total manufacturing cost18,000,000 72 * © 2012 Pearson Prentice Hall. All rights reserved. Make-Versus-Buy Decision Broadfield, Inc., offers to sell Soho 250,000 DVD players next year for $64 per unit. The capacity now used to make the DVD will become idle if the DVD purchased. The $3,000,000 of fixed manufacturing overhead will continue to be incurred next year regardless of the decision made. Conclusion:{Irrelevant} $ 750,000 in fixed salaries to support materials handling and setup will not be incurred if the DVD is completely shut down. Conclusion:{Relevant} * © 2012 Pearson Prentice Hall. All rights reserved. Should we make or buy DVD? Given that the total costs of making are less than the cost of buying the DVD, Soho should continue to make the DVD. The total avoidable costs of $340,000 are less than the $500,000 cost of buying the part, thereby suggesting that Essex should continue to make the part. Sheet1 Relevant and irrelevant information MakeBuy Outside purchase price$ 64 Direct Material$ 36 Direct manufacturing labor10 Variable Manufacturing overhead6 Mixed(Variable and Fixed) manufacturing costs of materials handling and setup8 Fixed manufacturing overhead costs of plant lease, insurance, and admin.1212 Total cost$ 72$ 76 &A Page &P © 2012 Pearson Prentice Hall. All rights reserved. Should we make or buy DVD? Given that the total costs of making are less than the cost of buying the DVD, Soho should continue to make the part. The total avoidable costs of $340,000 are less than the $500,000 cost of buying the part, thereby suggesting that Essex should continue to make the part. Sheet1 Only Relevant info. MakeBuy