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Chapter 25: Q25-26RQ (page 1407)
What is the decision rule for selling a product as is or processing it further?
Answer
The decision rule associated with selling a product or processing the same further is the consideration ofadditional revenue.
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What questions should managers answer when setting regular prices?
Edna Fashions operates three departments: Men鈥檚, Women鈥檚, and Accessories. Departmental operating income data for the third quarter of 2018 are as follows:
EDNA FASHIONS
Income Statement
For the Quarter Ended September 30, 2018
Department
Men鈥檚 Women鈥檚 Accessories Total
Net Sales Revenue \(101,000 \)59,000 \(102,000 \)262,000
Variable Costs 65,000 35,000 91,000 191,000
Contribution Margin 36,000 24,000 11,000 71,000
Fixed Costs 27,000 19,000 29,000 75,000
Operating Income \(9,000 \)5,000 \((18,000) \)(4,000)
Assume that the fixed costs assigned to each department include only direct fixed costs of the department:
鈥� Salary of the department鈥檚 manager
鈥� Cost of advertising directly related to that department
If Edna Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should Edna Fashions drop any of the departments? Give your reasoning.
List the four steps in short-term decision making. At which step are managerial accountants most involved?
What is the decision rule concerning products to emphasize when facing a constraint?
Priscilla Smiley manages a fleet of 250 delivery trucks for Daniels Corporation. Smiley must decide whether the company should outsource the fleet management function. If she outsources to Fleet Management Services (FMS), FMS will be responsible for maintenance and scheduling activities. This alternative would require Smiley to lay off her five employees. However, her own job would be secure; she would be Daniels鈥檚 liaison with FMS. If she continues to manage the fleet, she will need fleet management software that costs \(9,500 per year to lease. FMS offers to manage this fleet for an annual fee of \)300,000. Smiley performed the following analysis:
Retain in-house Outsource to FMS Difference
Annual leasing fee for \(9,500 \)9,500
Software
Annual maintenance of
Trucks 147,000 147,000
Total annual salaries of
Five laid-off employees 185,000 185,000
Fleet management
Service鈥檚 annual fee \(300,000 (300,000)
Total differential cost of
Outsourcing \)341,500 \(300,000 \)41,500
Requirements
1. Which alternative will maximize Daniels鈥檚 short-term operating income?
2. What qualitative factors should Daniels consider before making a final decision?
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