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Financial & Managerial Accounting, 5th Edition
1330
Reporting in Action — BTN 23-1
1.
$ millions
Off-road
Snow
On-road
Revenues ....................................................
$1,823
$280
$146
Operating expenses................................
1,586
294
140
Operating income ................................
$ 237
$ (14)
$ 6
2. If the results in Part 1 are typical, then Polaris might decide to eliminate
Comparative Analysis — BTN 23-2
2. If we assume that the average product of Polaris and Arctic Cat sells for
around $12,000, then the contribution margin per product is about
3.
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Primary points for discussion of the importance of effective
advertising:
(a) Students need to recognize that advertising is very expensive
and crucial to most merchandisers.
(b) The students should also recognize that an advertisement
must be effective to justify its cost and the related product mix
decision of managers.
(c) In most cases the advertisement must generate several
thousand dollars in sales to pay for the advertisement.
Financial & Managerial Accounting, 5th Edition
1332
Ethics Challenge — BTN 23-3
1 and 2.
Per controller
Per Asiago
Selling price .........................................................
$ 40
$ 40
Variable costs .......................................................
42
40
Contribution margin .............................................
$ (2)
$ 0
3. Whether the company should take the order depends on several factors:
• Asiago is eager to obtain a new customer. However, will the
customer expect that the selling price of the product will remain at
Communicating in Practice — BTN 23-4
MEMORANDUM
TO: Manager
FROM: Student
DATE:
SUBJECT: Considerations when deciding whether to drop the hardware department
It is important to understand fully the consequences of dropping a
department. Many factors need to be taken into account. These include:
• What is the contribution margin of the department? If it is positive
it is contributing something to cover the overall fixed costs of the
entire store.
• Will there be any fixed costs saved if the department is closed? That
will increase overall store income.
• What can we do with the space that is now being used for the
hardware department? Can we expand a more profitable
department?
• Will dropping the hardware department affect sales in other
departments? Will customers who need hardware and other items
go elsewhere instead of Greeble’s?
Taking It to the Net — BTN 23-5
1. According to Bizbrim, the business processes typically outsourced are
2. Companies who are outsourcing their business processes are able to
recruit more labor at lower prices than they otherwise could. This
enables these companies to lower their costs and generate higher
profits. Business process outsourcing also benefits “third world”
countries by generating good jobs.
Teamwork in Action — BTN 23-6
Instructor note: Answers will vary across students. Yet the examples, while
different, should capture similar qualitative factors.
Cost item
Variable
or Fixed?
Likely to be saved
if flight is dropped?
Rationale
Salaries of
flight
attendants
Fixed
No
If the flight is dropped, these
flight attendants are likely to
be transferred to other flights.
It is possible in the long run to
reduce the total number of
flight attendants if the flight is
permanently dropped.
Salaries of
pilots
Fixed
No
The rationale is the same as
for the flight attendants. It is
possible in the long run to
save their salaries, but
probably not in the short run.
Fuel
Variable
Yes
The fuel will not be used, and
therefore will be saved.
Food and
drink given
away on the
flight
Variable
Yes
There will be no passengers to
eat the snacks and drink the
sodas.
Aircraft
depreciation
Fixed
No
The aircraft will be used
elsewhere. However, in the
long run, it is likely that Delta
can reduce the number of
aircraft owned if the flight is
permanently dropped.
Advertising
Fixed
No
Advertising is probably not
aimed at a particular flight.
Baggage
handling
Fixed
No
This is another cost that might
be saved in the long run if
Delta permanently drops the
flight, but is not saved in the
short run.
Entrepreneurial Decision — BTN 23-7
1.
Deluxe
Premium
Selling price per unit .....................................................
$ 70
$ 90
Variable costs per unit ..................................................
40
50
Contribution margin per unit ........................................
$30
$40
Processing hours to produce 1 unit (carton) ..............
1
2
Contribution per processing hours
(contribution margin per unit/[hours per unit]) ...............
$30
$20
2. Sales Mix Recommendation with Sales Constraint. Charlie should make
60 cartons of Deluxe brownies to exactly match expected demand, and
commit the remainder of its productive capacity to Premium brownies.
Entrepreneurial Decision (continued)
The output of Premium brownies with 340 production hours is
Hitting the Road — BTN 23-8
Costs that must be considered: Costs of the ingredients, labor costs to
prepare the item; additional equipment needed to produce the item;
costs of training personnel to prepare the new item; costs of new
packaging required; costs of reformatting the cash registers to accept
the new item.
Nonfinancial items to be considered: Whether the new product will
enhance the current menu; consumer acceptance of the new item; lost
sales from current products if customers change from regular products;
competitors’ reaction to the new product.
Global Decision — BTN 23-9
There are probably several reasons why KTM would take on this project.
One reason is that the lower ongoing packaging costs can generate some
improved ongoing cash flows. KTM also probably feels a responsibility to
society to be a good citizen. They may feel that it is the right thing to do,
but it also has the benefit that some customers may look upon the
company more favorably and be more inclined to buy KTM’s products.
