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Chapter 25: Q25-20RQ (page 1407)

What is the decision rule concerning products to emphasize when facing a constraint?

Short Answer

Expert verified

Answer

The decision ruleis to select the high contribution margin per unit product when facing a constraint.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Constraint Management

The term constraint management refers to a technique or approach used by the management to draft decisions associated with theproduction and sales in case of difficulties, i.e.,constraints.

02

Decision rule associated with the products to emphasize in case of a constraint

The decision rule refers to the selection of the best alternative from the available choices when facing constraints. The decisions in such situations are generally associated with what to produce and which quantity should be produced.

In such a decision-making process, a company must opt for the production of a product that contains a high contribution margin per unit.

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Most popular questions from this chapter

Green Thumb operates a commercial plant nursery, where it propagates plants for garden centers throughout the region. Green Thumb has \(5,300,000 in assets. Its yearly fixed costs are \)625,000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-size plant total \(1.70. Green Thumb鈥檚 volume is currently 490,000 units. Competitors offer the same plants, at the same quality, to garden centers for \)4.00 each. Garden centers then mark them up to sell to the public for \(9 to \)12, depending on the type of plant.

Requirements

1. Green Thumb鈥檚 owners want to earn an 10% return on the company鈥檚 assets. What is Green Thumb鈥檚 target full product cost?

2. Given Green Thumb鈥檚 current costs, will its owners be able to achieve their target profit?

3. Assume Green Thumb has identified ways to cut its variable costs to \(1.55 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit?

4. Green Thumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Green Thumb does not expect volume to be affected, but it hopes to gain more control over pricing. If Green Thumb has to spend \)135,000 this year to advertise and its variable costs continue to be $1.55 per unit, what will its cost-plus price be? Do you think Green Thumb will be able to sell its plants to garden centers at the cost-plus price? Why or why not?

What are joint costs? How do they affect the sell or process further decision?

What are sunk costs? Give an example.

What questions should managers answer when setting regular prices?

What are the two keys in short-term decision making?
See all solutions

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