M AKE VS BUY WEEK 10. Product RProduct S Selling price$12$20 Materials$4$11 Labour hours 24 Machine hours 43 I LLUSTRATIVE QUESTIONS Q 11.2 Maxitank makes.

Slides:

Advertisements

Similar presentations

Prepared by Diane Tanner University of North Florida Chapter 11 1 Incremental Analysis.

Advertisements

Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition McGraw-Hill/Irwin Copyright © 2013.

Relevant Costs and Revenues for Decision-making

Pricing Decisions and Cost Management

Decision Making and Relevant Information

McGraw-Hill/Irwin Slide 1 McGraw-Hill/Irwin Slide 1 Capital budgeting: Analyzing alternative long- term investments and deciding which assets to acquire.

1 Bruce Bowhill University of Portsmouth ISBN: © 2008 John Wiley & Sons Ltd.

CHAPTER 6 INCREMENTAL ANALYSIS Study Objectives

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 10 Relevant Information and.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 21-1 INCREMENTAL ANALYSIS Chapter 21.

Lecture 2 Relevant Cost Concepts and Terminology The Jennie Mae Frog Farm Break Cost behavior.

Relevant Costs for Decision Making Chapter 13. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Cost Concepts for Decision Making A relevant.

Relevant Costing for Managerial Decisions

November 4, Part 2 The microeconomic foundations of management accounting Cost classifications and cost behavior Cost-Volume-Profit analysis.

©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler Introduction.

The microeconomic foundations of management accounting Break Cost classifications and cost behavior ACTG 321 Agenda for Lecture 2.

13 Relevant Costs for Decision Making Chapter Future revenues or costs that differ among alternatives. Is the cost of equipment purchased in the past relevant?

Outsourcing Decisions Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 21.

©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton Relevant Information and Decision.

1 Accounting Principles Using Excel for Success PowerPoint Presentation by: Douglas Cloud, Professor Emeritus Accounting, Pepperdine University © 2011.

1 24 Differential Analysis and Product Pricing Student Version.

Cost behaviour & effect of changing activity levels on unit costs.

Decision-Making. learning objectives the scope of decision-making the seven steps of the decision-making process relevant costs examples of practical.

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

9 - 1 © 2005 Accounting 1/e, Terrell/Terrell Using Relevant Information for Internal Operations Chapter 9.

Copyright © 2003 Pearson Education Canada Inc. Slide Chapter 11 Decision Making and Relevant Information.

PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright.

MANAGEMENT ACCOUNTING WEEK 9. O VERVIEW – C HAPTER 11 Operations & accounting The value chain Manufacturing v. services Standard costs Capacity utilization,

Accounting Principles, Ninth Edition

Part Three: Information for decision-making

Financial and Managerial Accounting John J. Wild Third Edition John J. Wild Third Edition McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,

1 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Chapter 11 Operating Decisions.

Chapter 26 Part 1.

Short-Run Decision Analysis 27. Short-Run Decision Analysis and the Management Process OBJECTIVE 1: Descibe how managers make short-run decisions using.

PowerPointPresentation by PowerPoint Presentation by Gail B. Wright Professor of Accounting Bryant University © Copyright 2007 Thomson South-Western, a.

Relevant Cost Decisions DECISION MAKING IN THE SHORT TERM.

Introduction to Management Accounting

Lecture 2 Relevant Cost Concepts and Terminology The Jennie Mae Frog Farm Entrance Exam.

Chapter 25 Short-Term Business Decisions

9 Differential Analysis and Product Pricing Managerial Accounting 13e

Contribution. Definition of contribution Contribution is the difference between sales revenue and variable cost Contribution is the difference between.

Cost and Management Accounting: An Introduction, 7 th edition Colin Drury ISBN © 2011 Cengage Learning EMEA Cost and Management Accounting:

Differential Cost Analysis

Differential Analysis and Product Pricing Chapter 12.

@ 2012, Cengage Learning Differential Analysis, Product Pricing, and Activity-Based Costing LO 1c – Make or Buy Decisions and Replace Equipment Decisions.

AC239 Managerial Accounting Seminar 9 Jim Eads, CPA, MST, MSF Differential Analysis and Product Pricing 1.

Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011.

© 2012 Pearson Prentice Hall. All rights reserved. Using Costs in Decision Making Chapter 3.

1 Chapter 16 Relevant Costs and Benefits for Decision Making.

Demonstration Problem Chapter 16 – Exercise 5 Accept Special Sales Order? Accounting What the Numbers Mean 9e.

ACCT 2302 Fundamentals of Accounting II Spring 2011 Lecture 18 Professor Jeff Yu.

© 2013 John Wiley & Sons, Ltd, Accounting for Managers, 1Ce, Ch 9 1.

Relevant Costs for Decision Making Chapter 13. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Cost Concepts for Decision Making A relevant.

6 - 1 Chapter 6 Relevant Information and Decision Making: Production Decisions.

Prepared by Diane Tanner University of North Florida ACG Incremental Analysis 3-1.

Short Term Decision Making Chathuri Senarath Senior Lecturer- University of Kelaniya MEcon(UOC), BCom Sp (Hons) (UOC), CIMA (UK) Passed Finalist, AAT (SL)

© 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

Relevant costs. Identifying relevant costs Future costs Cash flows Incremental costs Making Decision.

ACC 561 Week 6 Assignment Practice Quiz Check this A+ tutorial guideline at 6-Assignment-Practice-Quiz.

Managerial accounting

Relevant Costs for Decision Making

Relevant Cost Decisions

Demonstration Problem

Weygandt-Kimmel-Kieso-Aly

Cost Accounting & Management Accounting

Cost Concepts for Decision Making

Relevant Information and Decision Making: Production Decisions

Cost Accounting for Decision-making

Cost Accounting for Decision-making

Presentation transcript:

M AKE VS BUY WEEK 10

Product RProduct S Selling price$12$20 Materials$4$11 Labour hours 24 Machine hours 43 I LLUSTRATIVE QUESTIONS Q 11.2 Maxitank makes two products. Its costs are: Maxitank’s sales are limited by the bottleneck (machine) capacity of the factory. Which of the two products should be produced first in order to maximize the throughput contribution generated from the limited capacity?

Product RProduct S Selling price$12$20 Materials$4$11 Throughput contribution $8$9 Machine hours43 Return per machine hour $2$3 Ranking21 Labour hours are irrelevant for throughput Solution 11.2

Product RProduct S Selling price$12$20 Materials$4$11 Labour cost$2$5 Labour hours 24 V ARIATION TO Q11.2 Maxitanks’ cost of labour is now included: Which of the two products should be produced first in order to maximize the profits generated from the limited capacity, taking material and labour costs into account?

Product RProduct S Selling price$12$20 Materials$4$11 Labour$2$5 Contribution$6$4 Labour hours24 Return per machine hour $3$1 Ranking12 Solution 11.2

Q 11.5 Sales 12,000 $100$1,200,000 Variable costs588,000 Contribution margin612,000 Fixed costs245,000 Profit$367,000 Harrison products capacity is 20,000 units per year. Their results for last year are: Harrison expects its regular sales next year to be 15,000 units. They also expect fixed costs to increase by $100,000. A foreign distributor has offered to buy a guaranteed 8,000 units at $95 per unit next year and the company can produce on the maximum capacity. Should Harrison accept this offer?

S OLUTION 11.5 Regular salesSpecial order Sales 15,000 $100 Sales $100 plus $95 $1,500,000 $1,200, ,000 Variable costs $49 $49 735, ,000 Contribution margin765,000980,000 Fixed costs345,000 Profit$420,000$635,000

O PERATING DECISIONS & RELEVANT COSTS Relevant costs are those that are relevant to a particular decision. Relevant costs are the future, incremental cash flows that result from a decision Sunk costs are not relevant Relevant costs are avoidable costs. Unavoidable costs are not relevant because, irrespective of what a decision is, unavoidable costs will still be incurred Relevant costs may be opportunity costs the loss of a future cash flow that takes place as a result of making a particular decision

A PPLYING RELEVANT COSTS Make versus buy: Outsourcing decisions Fixed costs are not relevant Equipment replacement Sunk costs and depreciation are not relevant Relevant cost of materials Material purchased specifically - relevant cost is the purchase price Material already in stock and used regularly - relevant cost is the replacement price Material already in stock but surplus - relevant cost is the opportunity cost Higher of scrap value or its value in any alternative use

R ELEVANT COSTS : MAKE V. BUY

E QUIPMENT REPLACEMENT

Q 12.4 Cirrus Company has calculated that the cost to make a component is made up of materials $120, labour $60, variable overhead $30 and fixed overhead of $25. Another company has offered to make the component for $140. If the company has spare capacity and wishes to retain its skilled labour force, should it make or buy the component?