Chapter 23: Q2DQ (page 1049)
Is nonfinancial information ever useful in managerial decision-making?
Yes, Non-Financial information is useful in managerial decision making.
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Suresh Co. expects its five departments to yield the following income for next year.
Sales Expenses Avoidable Unavoidable Total expenses Net income (loss)
Dept. N Dept. O Dept. P Dept. T Total
\(63,000 \) 35,000
9,800
51,800
61,600
36,400
12,600
49,000
\((14,000)
\)56,000
22,400
4,200
26,600
\(29,400
\)42,000
14,000
29,400
43,400
28,000
37,800
9,800
47,600
\((19,600)
Dept. M
\) \(224,000
120,400
107,800
228,200
\) 1,400 \( (1,400) \) (4,200)
A B C D E F G
1 2 3 4 5 6 7
Recompute and prepare the departmental income statements (including a combined total column) for thecompany under each of the following separate scenarios: Management (1) eliminates departments withexpected net losses and (2) eliminates departments with sales dollars that are less than avoidable expenses.Explain your answers to parts 1 and 2.
Kando Company incurs a \(9 per unit cost for Product A, which it currently manufactures and sells for \)13.50 per unit. Instead of manufacturing and selling this product, the company can purchase it for \(5 per unit and sell it for \)12 per unit. If it does so, unit sales would remain unchanged and \(5 of the \)9 per unit costs of Product A would be eliminated. Should the company continue to manufacture Product A or purchase it for resale?
Samsung’s 2016 Corporate Sustainability Report notes that the company spent 523 billion Korean won in 2015 for programs devoted to better health and education for children.
Required
Explain why a company like Samsung would pursue such a costly program
Alto Company currently produces component TH1 for its sole product. The current cost per unit to manufacture
its required 400,000 units of TH1 follows.
Direct materials and direct labor are 100% variable. Overhead is 75% fixed. An outside supplier has offered
to supply the 400,000 units of TH1 for \(4 per unit.
Direct materials . \)1.20
Direct labor . 1.50
Overhead . 6.00
Total cost per unit . . . . . . . . . . . . $8.70
Required
1. Determine whether management should make or buy the TH1.
2. What factors besides cost must management consider when deciding whether to make or buy TH1?
Santana Rey has found that Business Solutions’s line of computer desks and chairs has become very popular, and she is finding it hard to keep up with demand. She knows that she cannot fill all of her
orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows. Santana has determined that she only has 1,015 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.
Selling price per unit . \(1,125 \)375
Variable costs per unit 500 200
Contribution margin per unit . \( 625 \)175
Direct labor hours per unit . 5 hours 4 hours
Expected demand for next quarter 175 desks 50 chairs
Required
Determine the optimal sales mix and the contribution margin the business will earn at that sales mix.
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