Concept explainers
Concept introduction:
Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager’s decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.
Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.
Two basic types of the relevant costs are as follows:
- Out-of-pocket costs
- Opportunity costs
To calculate:
The number of units to be produced for each product to maximize the profit
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Managerial Accounting
- Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment, Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $60,000.a. If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use both graphic and algebraic approaches to get your answer.b. Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14 each. What would be the total contribution to profits from this new product during the first year?c. If the selling price is set at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. Which pricing strategy ($14.00 or $12.50) would result in the greater total contribution to profits?d. What other considerations would be crucial to the final decision about making and marketing the new…arrow_forwardSonora, Inc. is launching a new product that it estimates will sell for $95 per unit. Annual demand is estimated to be 98,000 units. Sonora estimates that using its current manufacturing technology, it can manufacture the units for $37 per unit, but if it purchases a new machine, the units can be manufactured for $36 per unit. Sonora has a target profit of 20% return on sales. Under target costing, what is the target cost for the new product?arrow_forwardSinbo Electronics is trying to reduce supply chain risk by making more responsible make-buy decisions through improved cost estimation. A high-use component can be purchased for $25 per unit with delivery promised within a week. Alternatively, Sinbo can make the component in-house and have it readily available at a material cost of $3 per unit if equipment costing $155,000 is purchased. Labor and other operating costs are estimated to be $45,000 per year over the study period of 5 years. Salvage is estimated at 10% of the first cost, and the interest rate is 10% per year. Which one of the following values is closest to the break-even quantity? Select one: а. 3,789 b. 3,158 с. 6,341 d. 4,404 e. 11,160arrow_forward
- Waterways is thinking of mass-producing one of its special-order sprinklers. To do so would increase unit variable costs for all sprinklers by an average of $0.60. The company also estimates that this change could increase the overall number of sprinklers sold by 10%, and the average unit sales price would increase $0.20. Waterways currently sells 489,000 sprinkler units at an average unit selling price of $28.20. The manufacturing costs are $8,393,890 variable and $1,283,761 fixed. Selling and administrative costs are $2,637,950 variable and $800,440 fixed. If the average unit sales price per sprinkler did not increase when the company began mass-producing the special-order sprinkler, what would be the effect on the company? (Round ratio answer to O decimal places, e.g. 5% and profit answer to 2 decimal places, e.g. 5,275.25.) Contribution margin ratio Profit by by LA $ %arrow_forwardVista Company manufactures electronic equipment. It currently purchases the special switches used in each of its products from an outside supplier. The supplier charges Vista $5.50 per switch. Vista's CEO is considering purchasing either machine A or machine B so the company can manufacture its own switches. The projected data are as follows: Annual fixed costs Variable cost per switch Machine A $632,400 1.78 Required: 1. For each machine, what is the minimum number of switches that Vista must make annually for total costs to equal outside purchase cost? 2. What volume level would produce the same total costs regardless of the machine purchased? 3. What is the most profitable alternative for producing 235,000 switches per year and what is the total cost of that alternative? Required 1 Required 2 Required 3 Complete this question by entering your answers in the tabs below. Machine B $ 860,100 0.80 Minimum number of switches For each machine, what is the minimum number of switches that…arrow_forwardA producer of chairs is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $10000 per month and a variable costs of $1.50 per unit produced. Each item is sold to the retailers at a price that averages $2.10 per unit. a. What volume per month is required to break even? b. What profit would be realized on a monthly volume of 65000 units? c. What volume is needed to obtain a profit of $15000 per month? d. What volume is needed to provide a revenue of $23000 per montharrow_forward
- ABC has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sale of new product YEAR EXPECTED VOLUME EXPECTED PRICE PER UNIT 1 48,000 19 2 48,000 20 3 90,000 16 4 40,000 12 The firm wants a net minimum of 3.5 profit per unit over the product life. Fixed average expenses related to the new product is expected to be 50,000 annually. Calculate the target cost per unit.arrow_forwardMary Williams, owner of Williams Products, is evaluatingwhether to introduce a new product line. After thinkingthrough the production process and the costs of raw materi-als and new equipment, Williams estimates the variable costsof each unit produced and sold at $6 and the fixed costs peryear at $60,000.a. If the selling price is set at $18 each, how many unitsmust be produced and sold for Williams to break even?Use both graphic and algebraic approaches to get youranswer.b. Williams forecasts sales of 10,000 units for the first year ifthe selling price is set at $14 each. What would be the totalcontribution to profits from this new product during thefirst year?c. If the selling price is set at $12.50, Williams forecasts thatfirst-year sales would increase to 15,000 units. Which pric-ing strategy ($14.00 or $12.50) would result in the greatertotal contribution to profits?d. What other considerations would be crucial to the finaldecision about making and marketing the new product?arrow_forwardTLK Ltd. manufactures small size fans to be used in load shedding areas. Each fan has a rechargeable battery and a built in charging circuit. TLK sells a fan for $120. The annual sale is 30,000 fans. Variable and fixed cost data is given below: Variable expenses $84 per fan Fixed expenses $900,000 per year Required: Prepare contribution margin income statement and compute the degree of operating leverage. Next year the sales are expected to increase by 7,500 fans. Compute (a) the expected percentage increase in net operating income (b) expected increase in net operating income and (c) expected total net operating income for the next year.arrow_forward
- Utah Utensil has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product: Year Expected Volume (Units) Expected Price per Unit 1 41,280 $19 2 48,000 20 3 90,000 16 4 34,400 12 The firm wants to net a minimum of $3.50 per unit in profit over the product’s life, and selling and administrative expenses are expected to average $43,000 per year. Calculate the life cycle target cost per unit to produce the new utensil. Note: Round your answer to two decimal places (i.e., round 2.4555 to 2.46). $arrow_forwardWhitmore Glassware makes a variety of drinking glasses and mugs. The company's designers have discovered a market for a 16 ounce mug with college logos. Market research indicates that a mug like this would sell well in the market priced at $28.21. Whitmore only introduces a product if they can an operating profit of 30 percent of costs. Required: What is the highest acceptable manufacturing cost for which Whitmore would be willing to produce the mugs? (Round your answer to 2 decimal places.)arrow_forwardA furniture company manufactures desks and chairs. Each desk requires 29 hours to manufacture and contributes $400 to profit, and each chair requires 19 hours to manufacture and contributes $250 to profit. Due to marketing restrictions, a total of 2000 hours are available. Use Solver to maximize the company’s profit. What is the maximum profit? How many desks and chairs should the company manufacture? Of the 2000 available hours, how many hours will be used?arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education