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Solution Manual Conerstone Chapter 17
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  CHAPTER 17ACTIVITY RESOURCE USAGE MODELAND TACTICAL DECISION MAKING DISCUSSION QUESTIONS 1. Tactical decision making is choosing amongalternatives with an immediate or limitedend in mind. 2. Tactical decisions should support the overallstrategic objectives of an organization. Often,the strategic objectives are served by small-scale actions. For eample, making a partinstead of buying it may lower costs of production and thus serve the strategic costleadership objective. Or it may serve theobjective of differentiation by helping toproduce a higher-!uality final product thanproduced by competitors. 3. Tactical cost analysis is the use of relevantcost data to identify the alternative thatprovides the greatest benefit to theorganization. teps #$% are the major components of tactical cost analysis&'redicting costs, comparing relevant costs,and selecting the lowest cost alternative (or alternative with the greatest benefit). 4.  *nswers will vary. + (second author) haveused this as a writing assignment for severalyears. +t has been very successful studentsenjoy analyzing their own decisions,whether it is buying a car, moving from thedorm into an apartment, or getting a puppy. ometimes, the application of the modelleads to new insights into their problems. 5. elevant costs and revenues are futurecosts and revenues that differ acrossalternatives. epreciation on an eistingasset represents an allocation of a pastcost. 'ast costs are never relevant. 6.  * future cost that is not relevant is a futurecost that does not differ across thealternatives being considered. For eample,rent on a factory in a keep-or-drop decisionis a future cost, but it will be there whether one of the factory/s products is dropped or kept. 7. 0o. elevant costs are just part of theoverall tactical decision-making model. trategic effects and other !ualitativefactors may affect the decision. The effectmay be such that a higher-cost alternativemay be chosen. 8. 1es, direct materials can be irrelevant. +n amake-or-buy decision, any direct materialsalready in inventory are irrelevant. +n amake-or-buy decision, the salary of theproduction supervisor would be fied butrelevant to the decision. 2easing e!uipmentis relevant if it is a future cost that differsacross alternatives. +n most cases, thiswould not be a factor because it entails theac!uisition of multiperiod capacity and reallybelongs to the capital ependiture decisiondomain. 9. The only role of past costs is predictive.They can be used to help predict futurecosts. 1. Fleible resources are relevant whenever the demand for an activity changes acrossalternatives. esource spending will differ across alternatives, making the cost of theactivity relevant. 11. Typically, committed resources ac!uiredthrough implicit contracting are ac!uired inlumpy amounts and are not formalcommitments. Thus, if changes in demandacross alternatives produce a change inresource supply, then resource spending willalso change, making the cost relevant.3sually, the cost of committed resources isa sunk cost (since they are ac!uired inadvance). eductions in demand typicallydo not lead to reductions in resourcespending. +ncreases in demand beyond theactivity capacity usually mean a major resource ependiture4a decision that isoutside the domain of tactical decisionmaking and more in the domain of strategicanalysis. 12.  * functional-based make-or-buy analysisfocuses on unit-level activities and directlyattributable fied cost and assumes that thecosts of all other non-unit-level activities are 17-1 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, coied or d!licated, or osted to a !blicly accessible ebsite, in hole or in art.  irrelevant. *n activity-based analysiseploits activity cost behavior to identifyrelevant costs. 13.  *ctivity-based segmented reports tracecosts to segments using activity drivers andprovide a more accurate assessment of profitability. *dditionally, the use of theactivity resource usage model allows amanager to more fully assess the changesin resource spending that will occur if asegment is dropped. 14. 5oint costs are present whether the productis processed further or sold at split-off andare not relevant. 15. +f a firm has unused production capacity andsufficient unused activity capacity, a one-time special order may bring in morerevenues than the increase in resourcespending needed to fill the order. +n thiscase, short-term profits will increase. 17-2 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, coied or d!licated, or osted to a !blicly accessible ebsite, in hole or in art.  CORNERSTONE E!ERCISESC #$%#&' $% E(%#)*&% 17.1 1.T+% ,-'%#$,'*%& ,#% ' /,0% '+% ,#' *$ + &% #  '+% ,#' %('%#$,--. 2.The relevant costs of making the part are: direct materials, directlabor, and variable factory overhead. The relevant cost of buyingthe part is the purchase price. 3. M,0%  D*%#%$)%D*#%)' /,'%#*,-&.........................144144D*#%)' -, #................................612612V,#*,-% %#+%,......................234234P#)+,&% #*)%...........................  2484 :2484;T ',-&...................................... 225 2484 :234;%),&% '+% *(% %#+%, *& $ ' #%-%,$' '+% ,$,-&*& &+ <& , 234,,$',=% *$ , #  /,0*$= '+% ,#' *$ + &%.4. M,0%  D*%#%$)%D*#%)' /,'%#*,-&.........................144144D*#%)' -, #................................612612V,#*,-% %#+%,......................234234E>*/%$' #%$',-.......................18541854P#)+,&% #*)%...........................  2484 :2484;T ',-&...................................... 414  2484 162P,#'  *(% %#+%, :%>*/%$' #%$',-; *& #%-%,$'? '+% ,$,-&*& &+ <& ,162 ,,$',=% *$ , #  *$= '+% ,#' # / '+% %('%#$,- &-*%#. 17-# © 2015 Cengage Learning. All Rights Reserved. May not be scanned, coied or d!licated, or osted to a !blicly accessible ebsite, in hole or in art.  C #$%#&' $% E(%#)*&% 17.2 1. M %- 1 M %- 2 M %- 3 T ',- S,-%&................................246578634614586L%&& ,#*,-% COGS.......:935;:16416;:348;:6566;L%&& ) //*&&* $&......... :5; :28; :2175; :5475;C $'#*'* $ /,#=*$...1475385842648579819L%&& '#,)%,-% *(% %(%$&%&@E$=*$%%#*$= , ................242253753S%''*$=   ...................744753618E>*/%$' #%$',-........22C&' /%# &%#*)% ) ...... 748 825 2695 11P# )' /,#=*$............... :457 ; 334235545819L%&& ) // $ *(% %(%$&%&@,)' # %#+%,  ......:168;S%--*$= ,$ ,/*$. %(%$&% % .................. :18;O%#,'*$= *$) /%........... 1119 , E$=*$%%#*$= #,'% B 3:8  75  175; B 3 %# %$=*$%%#*$= + # E$=*$%%#*$= ) &' ,&&*=$/%$'&@ 3  8? 3  75? 3  125  S%' #,'% B 18:124  125  51; B 6 %# &%' + # S%' ) &' ,&&*=$/%$'&@ 6  124? 6  125? 6  51 ) C&' /%# &%#*)% #,'% B 11:136  15  49; B 5.5 %# ),--C&' /%# &%#*)% ) &' ,&&*=$/%$'&@ 5.5  136? 5.5  15? 5.5  49  C // $ *(% ,)' # %#+%, B 398  – $30,000 – $180,000 – $20,000 % C // $ &%--*$= F ,/*$. %(%$&% B 29  – $110,000 2.T+% #% #/-,'% *$) /% &','%/%$' &+ <& , - &&  # M %- 1. N < '+%,-'%#$,'*%& ,#% ' 0%% M %- 1 # ' #  *'. S*$)% ,-- '#,)%,-% *(%%(%$&%& ,#% ,&&/% ' % , *,-% # *$= M %- 1 <*-- , 457 ' %#,'*$= *$) /% /,0*$= *' 15584 <+*)+ *& 12.9 %#)%$'  &,-%&:12126;.3.I $- 175 + #&  %$=*$%%#*$= '*/% ),$ % , *% '+% ,/ $' '#,)%,-% ' M %- 1 *& 525 :3  175; ,$ '+% #%/,*$*$= 1875 *& ,#'  ) // $*(% %#+%,. S*/*-,#- * $- 5 &%' + #& ),$ % , *% %-*/*$,'*$= M %- 1 '+% ,/ $' '#,)%,-% ' M %- 1 *& 3 :6  5;,$ '+% #%/,*$*$= 444 *& ,#'  ) // $ *(% %#+%,. T+& '+%# )' /,#=*$  # M %- 1 *& 1745 :1475  525  3  2  748;. N < '+% # )' /,#=*$ *& $ - $=%# $%=,'*% ,$ '+% ) /,$<*-- - &% 1745 * M %- 1 *& # %. T+% %&' &'#,'%= *$ '+*& ),&% < -% '  )& $ #%)*$= '+%# ) &'& ,$ &*$= %()%&& ),,)*' *$ ,# )'*% <,. 17-$ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, coied or d!licated, or osted to a !blicly accessible ebsite, in hole or in art.
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