CHAPTER 8 Tactical Decision Making and Relevant Analysis
CHAPTER 8 Tactical Decision Making and Relevant Analysis
P 8-57
↓ change here, please
1. Cost Item Make Buy Porcelain Gold Salary (supervisor) 26,000
Raw materialsa…………………………………………………………………………………….
$218,000 $ 0 Raw materials 70 130 Rent (lab facility) 32,000
Direct laborb………………………………………………………………………………………..
70,200 0 Direct labor 27 27 DLH 5,500
Variable overheadc………………………………………………………………………………..
Fixed overheadd……………………………………………………………………………………
Purchase coste…………………………………………………………………………………….
Net savings by purchasing: $367,000 – $340,000 = $27,000.
Hetrick should purchase the crowns rather than make them.
Depreciation of $5,000 is irrelevant (and therefore excluded from the analysis
here) because it will NOT change regardless of whether Hetrick makes or
buys the crowns.
a($70 × 2,000 Porcelain) + ($130 × 600 Gold) = $218,000 70 × 2,000 + 130 × 600 = 218,000
b
$27 × (2,000 + 600) = $70,200
27 × 2,000 + 600 = 70,200
CHAPTER 8 Tactical Decision Making and Relevant Analysis
P 8-57 (Concluded)
2. Qualitative factors that Hetrick should consider include quality of crowns, reliability
and promptness of producer, and reduction of workforce. ? ?
4. Cost Item Make Buy Porcelain Gold Salary (supervisor) 26,000
$372,000 $ 0 Raw materials 70 130 Rent (lab facility) 32,000
129,600 0 Direct labor 27 27 DLH 5,500
38,400 0 Variable overhead 8 8 Price offered 125 150
58,000 0 Fixed overhead 22 22 Crowns used 4,200 600
0 615,000 Volume, crowns 3,400 600
$598,000 $615,000 Depreciation 5,000
a($70 × 4,200 Porcelain) + ($130 × 600 Gold) = $372,000 70 × 4,200 + 130 × 600 = 372,000
b$27 × (4,200 + 600) = $129,600 27 × 4,200 + 600 = 129,600
c$8 × (4,200 + 600) = $38,400 8 × 4,200 + 600 = 38,400
d($125 × 4,200) + ($150 × 600) = $615,000 125 × 4,200 + 150 × 600 = 615,000
P 8-58
change here, please ↓
Process Depryl units 600
Per 600 lbs. Further Sell Difference SP 12
Revenuesa…………………………………………………………………………………………
$24,000 $7,200 $16,800 Units after further processing 10
Bagsb…………………………………………………………………………………………
0 (39) 39 Revenue 4
Shippingc…………………………………………………………………………………………
(384) (60) (324) Units sold 265,000
Grindingd…………………………………………………………………………………………
(1,500) 0 (1,500) Wt. of bags 20
Bottlese…………………………………………………………………………………………
(2,400) 0 (2,400) Shipping cost per pound 0.10
$19,716 $7,101 $12,615 ↓ links ↓ Cost of bag 1.30
a600 × 10 × $4 = $24,000; 600 × 10 × 4 = 24,000 Bottles per box 25
$12 × 600 = $7,200 12 × 600 = 7,200 Grinding & tableting cost 2.50
b$1.30 × (600/20) 1.30 × 600 /20 = 39 Bottles cost 0.40
c[(10 × 600)/25] × $1.60 = $384; 10 × 600 /25 × 1.60 = 384 Shipping cost/box 1.60
d$2.50 × 600 = $1,500 2.50 × 600 = 1,500
e10 × 600 × $0.40 = $2,400 10 × 600 × 0.40 = 2,400
CHAPTER 8 Tactical Decision Making and Relevant Analysis
P 8-59
change here, please ↓
1. System A System B Headset Total System A System B Headset System C
Sales……………………………………………………………………………
$45,000 $32,500 $8,000 $85,500 Sales 45,000 32,500 8,000 80%
Variable expenses……………………………………………………………………………
20,000 25,500 3,200 48,700 VC 20,000 25,500 3,200
Contribution margin……………………………………………………………………………
$25,000 $ 7,000 $4,800 $36,800 FC 10,000 18,000 2,700
Direct fixed cost……………………………………………………………………………
526 11,158 1,016 12,700 Inc./Dec. 30% 25%
Segment margin……………………………………………………………………………
$24,474 $ (4,158) $3,784 $24,100 Dec. 10%
Common fixed cost……………………………………………………………………………
18,000 Contribution margin 50%
Operating income……………………………………………………………………………
$ 6,100 ↓ links ↓
*$45,000/$85,500 × $18,000 = $9,474; 45,000 /85,500 × 18,000 = 9,474
$10,000 – $9,474 = $526 10,000 – 9,474 = 526
← direct fixed cost, system A
** $32,500/$85,500 × $18,000 = $6,842; 32,500 /85,500 × 18,000 = 6,842
$18,000 – $6,842 = $11,158 18,000 – 6,842 = 11,158
← direct fixed cost, system B
*** $8,000/$85,500 × $18,000 = $1,684; 8,000 /85,500 × 18,000 = 1,684
$2,700 – $1,684 = $1,016 2,700 – 1,684 = 1,016
← direct fixed cost, headset
2. System A Headset Total 45,000 + 45,000 × 30% = 58,500 ← sales, system A
Sales……………………………………………………………………………
← sales, headset
Variable expenses……………………………………………………………………………
← variable expenses, system A
Contribution margin……………………………………………………………………………
← variable expenses, headset
Direct fixed cost……………………………………………………………………………
← links to above
Segment margin……………………………………………………………………………
$31,974 $2,584 $34,558
Common fixed cost……………………………………………………………………………
Operating income……………………………………………………………………………
$16,558
3. System A System C Headset Total 32,500 × 80% = 26,000 ← sales, system C
Sales……………………………………………………………………………
$45,000 $26,000 $7,200 $78,200 8,000 – 8,000 × 10% = 7,200
← sales, headset
Variable expenses……………………………………………………………………………
20,000 13,000 2,880 35,880 26,000 × 50% = 13,000
← variable expenses, system C
Contribution margin……………………………………………………………………………
$25,000 $13,000 $4,320 $42,320 3,200 – 3,200 × 10% = 2,880
← variable expenses, headset
Direct fixed cost*……………………………………………………………………………
526 11,158 1,016 12,700
← links to above
Segment margin……………………………………………………………………………
$24,474 $ 1,842 $3,304 $29,620
Common fixed cost……………………………………………………………………………
Operating income……………………………………………………………………………
$11,620
*** ***
CHAPTER 8 Tactical Decision Making and Relevant Analysis
P 8-60
change here, please ↓
1. Steve should consider selling the part for $1.85 because his division’s profits would Units 8,000
increase $12,800: Selling price 32.00
Accept Reject ↓ links ↓ Direct materials 17.00
Revenues (2 × $1.85 × 8,000)………………………………………………………………………………………………………………..
$29,600 $0 2 × 1.85 × 8,000 = 29,600 DL 7.00
Variable expenses (2 × $1.05 × 8,000)………………………………………………………………………………………………………………..
16,800 0 2 × 1.05 × 8,000 = 16,800 Var OH 2.00
Total……………………………………………………………………………………………………………..
$12,800 $0 Fixed OH 3.00
Accept Reject Variable 1.05
Revenues ($32 × 8,000)………………………………………………………………………………………………………
2. Pat should accept the $2 price. This price will increase the cost of the component 2 × 2.00 × 8,000 = 32,000
from $29,600 to $32,000 (2 × $2 × 8,000) and yield an incremental benefit of $16,000 32,000 – 29,600 = 2,400
($18,400 – $2,400). 18,400 – 2,400 = 16,000
Steve’s division will see an increase in profit of $15,200 (8,000 units × 2 components 2.00 – 1.05 = 0.95
per unit × $0.95 contribution margin per component). 8,000 × 2 × 0.95 = 15,200
↓ links ↓
change here, please ↓
P 8-61 48,100 + 130,000 DM 1,800
1. Markup based on cost of goods sold: DL 1,600
Cost of Goods Sold + (Cost of Goods Sold × Markup) = Sell Price
$48,100 + ($48,100 × Markup) = $130,000 48,100
+ (
48,100
× Markup) = 130,000
Markup = ($130,000 – $48,100)/$48,100 = ( 130,000 – 48,100 )/ 48,100
= 1.703, or 170.3% = 1.703 170.3%
2.
Direct materials…………………………………………………………………………………………
$ 1,800 O/H 800
Direct labor…………………………………………………………………………………………
Add: Markup ($4,200 × 1.703)…………………………………………………………………………………………
81,900
217%
=
CHAPTER 8 Tactical Decision Making and Relevant Analysis
P 8-62
Basic Standard Deluxe change here, please ↓
1.
Price……………………………………………………………………………………………………………
$ 9.00 $30.00 $35.00 Basic Standard Deluxe
Variable cost……………………………………………………………………………………………………………
6.00 20.00 10.00 Selling price 9.00 30.00 35.00
Contribution margin……………………………………………………………………………………………………………
$ 3.00 $10.00 $25.00 Variable cost 6.00 20.00 10.00
2. First, produce and sell 12,000 deluxe units, which would use 9,000 machine 12,000 × 0.75 = 9,000 9,000
hours (12,000 × 0.75). Then, produce and sell 50,000 basic units, which would 50,000 × 0.10 = 5,000 5,000
use 5,000 machine hours (50,000 × 0.10). Finally, with the remaining 1,000 15,000 – 14,000 = 1,000 14,000
machine hours, produce 2,000 standard units. 1,000 × 0.50 = 500
Total Contribution Margin = ($25 × 12,000) + ($3 × 50,000) + ($10 × 2,000) 25 × 12,000 + 3 × 50,000
= $470,000 + 10 × 2,000 = 470,000
*Rounded
↑ Origin of 2,000? Please supply calculation
P 8-63
change here, please ↓
1. The company should not accept the offer because the additional revenue is Direct materials 1.15
less than the additional costs (assuming fixed overhead is allocated and will Direct labor 2.00
not increase with the special order): Variable overhead 1.10
Incremental revenue per box………………………………………………………………………………….
Incremental cost per box………………………………………………………………………………………
$(0.05) ↓ links ↓ Offering price 4.20
2. Costs associated with the layoff: No. of calendars 5,000
Increase state UI premiums (0.01 × $1,460,000)……………………………………………………………………………………………………….…..….
$14,600 0.01 × 1,460,000 = 14,600 Inc. in state UI 1%
Notification costs ($25 × 20)……………………………………………………………………………………………………………………………………....
500 25 × 20 = 500 No. of EE’s 20
Rehiring and retraining costs ($150 × 20)…………………………………………………………………………………………………………………….…
3,000 150 × 20 = 3,000 Layoff paper cost 25
Total…………………………………………………………………………………………………………………………………………………………
$18,100 Rehiring 150
CHAPTER 8 Tactical Decision Making and Relevant Analysis
change here, please ↓
P 8-64
1.
Sales………………………………………………………………………………………………………………………………
$263,000 Alpha 100,000 Direct materials 95,000
Costs………………………………………………………………………………………………………………………………
223,000 Beta 93,000 Direct labor 43,000
Operating profit………………………………………………………………………………………………………………
$ 40,000 Gamma 30,000 Overhead 85,000
Revenues………………………………………………………………
Operating income (loss)…………………………………………………………………….
↓ links ↓ Juno Hera
P 8-65 30 × 2,000 + 60 × 4,000 Cont. margin 30 60
1. ($30 × 2,000) + ($60 × 4,000) = $300,000 = 300,000 Units 2,000 4,000
2. Juno Hera Pounds of mat. 2 5
Contribution margin………………………………………………………………………………………………………………
$30 $60 Pounds of mat. available
÷ Pounds of material………………………………………………………………………………………………………………
2 5
Contribution margin/pound………………………………………………………………………………………………………………
$15 $12
Norton should make as much of Juno as can be sold and then make Hera. ↓ links ↓
16,000
P 8-66
change here, please ↓
1. Process Germain units 1,000
Sell Further SP at split-off 24
Revenues……………………………………………………………………………
Processing cost……………………………………………………………………………
Total……………………………………………………………………………
$24,000 $28,900 $ 4,900 Joint cost 70,000
to Process Further
2. Process Ltrs. Of geraiten 1,000
Sell Further
Revenues……………………………………………………………………………
$24,000 $33,000 $ 9,000 × 1,000 litres
Processing cost……………………………………………………………………………
—(4,100) (4,100)
Distribution cost……………………………………………………………………………
—(800) (800)
Commissions……………………………………………………………………………
—(3,300) (3,300) × 10% commission
Total……………………………………………………………………………
$24,000 $24,800 $ 800
P 8-67
1. Monthly cost for FirstBank:
change here, please ↓
Checking accounts: ↓ links ↓ Fee per account 5
Maintenance fees ($5 × 6)………………………….………………..……………………….………………..……………………….……...………….
$ 30 5 × 6 = 30 Checking accounts: 6
Foreign DR/CR ($0.10 × 200)……………………………….………………..……………………….………………..……………………..………….
20 0.10 × 200 = 20 foreign debit/credit 0.10
Returned checks ($3 × 25)…….…………………………………………….………………..……………………….………………..……..………….
75 3 × 25 = 75 Foreign DR/CR 200
Earnings on deposits ($0.50 × 300)………………………….………………..……………………….…………………………………….……….
Credit card fees ($0.50 × 4,000)………………………………….………………..……………………….………………..…………….…………..
Wire transfers [($15 × 40) + ($50 × 60)]………………………………….………………..……………………….………………..…….……..
Line of credit charges (0.06/12 × $100,000)…………………………….………………..……………………….………………..…………………..
Internet banking charges………………………………….……….……………………….………………..
Credit card fees: 0.50
Wire cost, domestic 15
Transfers, domestic 40
Wire cost, foreign 50
Transfers, foreign 60
Internet banking charges 20
Avg monthly usage 100,000
Minimum interest rate 6%
Set-up fees 15
Returned check fee 2
Batches per month 20
Batch processing fee 7
Wire fee 30
Minimum interest rate 7%
foreign debit/credit 0.20
earned for each deposit 0.30
per returned check 3.80
Wire cost, domestic 10
Wire cost, foreign 55
Minimum interest rate 6.5%
Differential Amount
to Process Further
Differential Amount
CHAPTER 8 Tactical Decision Making and Relevant Analysis
(links to previous)
P 8-67 (Concluded) Fee per account 5
Monthly cost for Community Bank: ↓ links ↓ Checking accounts: 6
Checking accounts: Returned checks ($2 × 25)…….…………………………………………….………………..……………………….………………..……..……….…
$ 50 2 × 25 = 50 foreign debit/credit 0.10
Credit card fees Foreign DR/CR 200
Per item ($0.50 × 4,000)………………………………………………………………………………………………….
$2,000 0.50 × 4,000 = 2,000 per returned check 3
Batch processing ($7 × 20)……………………………………………………………………………………………..
140 2,140 7 × 20 = 140 Returned checks: 25
Wire transfers ($30 × 100)…….………………………………………………………………………….…………………
3,000 30 × 40 + 60 = 3,000 Months 12
Line of credit charges (0.07/12)($100,000)………………………………………………………………………………
583 0.07 /12 × 100,000 = 583 earned per deposit 0.50
Total monthly charges………………………………………………………………………………………..
$5,773 Deposits per month: 300
Foreign DR/CR ($0.20 × 200)………………………………………………………………………………..
Returned checks ($3.80 × 25)………………………………………………………………………..…..…
Earnings on deposits ($0.30 × 300)………………………………………………………………………..
Credit card fees ($0.50 × 4,000)…………………………………………………………………………………………………………..
Wire transfers [($10 × 40) + ($55 × 60)]…………………………………………………………………………………………………………………………….
Line of credit charges (0.065/12)($100,000)…………………………………………………………………………………………………………….…………
Internet banking charges………………………………….……………………………………………………
Total monthly charges………………………………….……………………………………………………
$6,307 Minimum interest rate 6%
* Answers rounded to the nearest dollar.
Community Bank has the lowest overall monthly fees. On quantitative factors Set-up fees 15
alone, it would be chosen. Returned check fee 2
2. If the full online banking access were crucial, Community Bank would be eliminated Batches per month 20
immediately. This leaves FirstBank and RegionalOne Bank. The two sets of monthly
Batch processing fee 7
Wire cost, domestic 10
Wire cost, foreign 55
Minimum interest rate 6.5%
*
CHAPTER 8 Tactical Decision Making and Relevant Analysis
Case 8-68
1. Pamela should not have told Roger about the deliberations concerning the power
department because this is confidential information. She had been explicitly told
objectives.
2. The romantic relationship between Pamela and Roger sets up a conflict of interest
for this particular decision. Pamela should have withdrawn from any active role in it.
(Standard III: 1) However, she should definitely provide the information she currently
has about the cost of eliminating the power department. To not do so would be active
subversion of the organization’s legitimate and ethical objectives. Moreover, she has
the obligation to communicate information fairly and to disclose all relevant
information that could reasonably be expected to influence an intended user’s
understanding. In addition, however, Pamela should discuss the qualitative effects
of eliminating the power department. The effects on workers, community relations,
CASES
CHAPTER 8 Tactical Decision Making and Relevant Analysis
change here, please ↓
Case 8-69
1.
Salesa……………………………………………………………………………………………………………………
$3,751,500 Sales 3,751,500 Variable selling exp 5
Less: Variable expensesb…………………………………………………………………………………………………………………
2,004,900 Cost of goods sold 2,722,400 Annuity 100,000
Contribution margin…………………………………………………………………………………………………………………
$1,746,600 Selling & adm. Exp. 1,100,000 Margin 25%
Less: Direct fixed expensesc…………………………………………………………………………………………………………………
1,518,250 SP per unit within the co. 83
Divisional margin…………………………………………………………………………………………………………………
$ 228,350 SP per unit to outsiders 100 Non allocated 70%
Less: Common fixed expensesc…………………………………………………………………………………………………………………
299,250 Fixed overhead 20
Operating (loss)…………………………………………………………………………………………………………………
$ (70,900) Allocated exp. 30%
b$83X/125.0% $66.40 Manufacturing cost 83 /125% = 66.40
–20.00 Fixed overhead
$46.40 Per internal unit variable cost
+5.00 Selling expenses ↓ links ↓
$51.40
Per external unit variable cost
41,000 / 2 = 20,500
Variable Costs = ($46.40 × 20,500) + ($51.40 × 20,500) 46.40 × 20,500 + 51.40 × 20,500 = 2,004,900
= $2,004,900
Common fixed expenses = 0.30 × $997,500 = $299,250 30% × 997,500 = 299,250
2. Keep Drop
Sales………………………………………………………………………………………………………
$ 3,751,500 $—
Variable costs……………………………………………………………………………………………………
(2,004,900) (2,050,000)
Direct fixed expenses……………………………………………………………………………………………………
(1,518,250) —
Annuity……………………………………………………………………………………………………
—100,000
Total……………………………………………………………………………………………………
$ 228,350 $(1,950,000)
Case 8-70
Answers will vary.
*