MGAB03H3 Lecture Notes - Lecture 4: Icq, Fixed Cost, Variable Cost

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peachturtle345

20 Jan 2016

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4. 21 make or buy, qualitative factors - yoklic corporation: the relevant information for this problem includes the variable costs to make and the purchase price to buy. Cost to make (. 00 + . 00 + . 00) Yoklic should make the subassembly because they save /unit: yes, this new information changes the decision. The cost to make is increased by the amount of fixed costs that will be eliminated if the part is purchased, which is . 00 (,000/5,000) per unit. Cost to make (. 00 + . 00 + . 00 + ) $ 4: two qualitative factors would be very important for yoklic. Delivery delays can disrupt yoklic"s ability to deliver products to its customers on a timely basis. Yoklic needs to be assured that the quality will meet its needs. Specifically, the variable costs are for ingredients for 1,000 cones and the special cover cost of. Product emphasis and keep or drop, product breakeven, relevant information .

Related Questions

Tactical decision making

Tactical decision making means choosing among alternatives withan immediate or limited end in view. For example, a company mayaccept a special order for less than the normal selling price touse idle capacity. Tactical decisions tend to be short-runin nature; however, it should be emphasized that short-rundecisions often have long-run consequences. A general tacticaldecision-making model is outlined here.

1.	Recognize and define theproblem.
2.	Identify possible alternativesolutions to the problem, and eliminate any unfeasiblealternatives.
3.	Identify the costs and benefitsassociated with each feasible alternative. Eliminate the costs andbenefits that are not relevant to the decision.
4.	Compare the relevant costsand benefits for each alternative.
5.	Assess qualitative factors.
6.	Select the alternative with thegreatest overall benefit.

Identifying and comparing relevant costs and revenues is theheart of the tactical decision model. Relevant costs (revenues) arefuture costs (revenues) that differ across alternatives. (Revenuesare treated in the same way as costs, so we will simplify thediscussion by referring to costs.) All decisions relate to thefuture; so, only future costs can be relevant. In addition, thecost must differ from one alternative to another. If a future costis the same for more than one alternative, it has no effect on thedecision. Such a cost is an irrelevant cost.

Assume that Reeves Company is considering accepting a specialorder for $25 per unit when the normal selling price is $30 perunit. Reeves has enough excess capacity to make the order withoutdisplacing normal sales. The alternatives facing Reeves Company are(Select "Yes" for the statements that are applicable and "No" forthe items that do not apply):

Accept the special order.	- Select your answer -YesNoItem1
Reject the special order.	- Select your answer -YesNoItem2
Sell normal sales for $25 perunit.	- Select your answer -YesNoItem3

Choose which of the following are relevant in deciding whetheror not to accept the special order. (Select "Yes" for thestatements that are applicable and "No" for the items that do notapply)

$25 price.	- Select your answer -YesNoItem4
$30 normal price.	- Select your answer -YesNoItem5
Variable cost of making the unitsin the special order.	- Select your answer -YesNoItem6
Depreciation on factory equipmentused in making the special order units.	- Select your answer -YesNoItem7
Increased property taxes on thefactory building which are due while the special order would bemade.	- Select your answer -YesNoItem8

While cost and revenue information is important, otherinformation may be needed to make an informed decision. Thesenon-financial factors are termed qualitative and are often relevantin decision making. For example, in deciding whether to make acomponent in-house or purchase it from an outside supplier, thecompany may consider any difference in quality or in responsivenessto the company's production schedules.

goldmoose557

"Cash is king." Donald Trump made this statement at the end of the 1980s, referring to the climate for real estate investment. Most people would agree that in life, cash is, indeed, king. The management and proper valuation of cash flows is the most important factor in the survival of a business. Almost all businesses receive cash payments in spurts but must make cash payments at regular intervals. Many businesses have failed not for a lack of sales success, but rather for a lack of timely cash. Therefore, the timing of cash flows and implied time value are of utmost importance.

In this assignment, you will evaluate scenarios involving your groupâs fictitious firm.

Your firm has a single copy machine for the tenth floor, and it has broken down yet again. Your firm must decide how to proceed in replacing the copier. So far, you have received two competing offers for comparable machines. Both offers are 3-year leases

Option A requires an up-front payment of $1,700 with additional annual payments of $1,200 at the beginning of years 2 and 3. The firm is also charged one-half of 1 cent, ($0.005), for each sheet printed, payable at the end of each year.

Option B has no up-front cost. Its lease payment is $1,300, payable at the beginning of the year, and the per-sheet charge is 1 cent ($0.01), payable at the end of each year. You estimate that monthly use of the copy machine will amount to 1,500 copies.

Determine an appropriate discount rate and discount the cash flows for each lease. Choose the best lease based on which lease costs less in present value terms. Be prepared to defend your choice.

A second option is to purchase the machine outright. In fact, after the lease expires, you are considering buying your firmâs next copier. (1) You need to obtain a minimum of two offers before buying a copy machine. Your needs include a multifunction machine capable of copying, faxing, and printing, with networking capability because all workers on the tenth floor will be sharing it. The purchase price should approximate the present value calculations from part a. In your search, you must consider not only the purchase price of the machine, but also the cost of any warranty/service agreement. In addition, you must adjust the current price for expected inflation. Take the price for the machine today and find out what the price will be in 3 years given a 3% compound annual inflation rate. Alternatively, you could calculate what the price would be given a 5% annual rate of decrease, as that is the observed trend over recent years. (2) Because you want to save for this expenditure (rather than take out a loan for it), you need information about savings rates at a local bank. (Here âbankâ refers to any depository institution, including those that are strictly online operations.) After getting a rate for a savings account, calculate what amount you would have to deposit today to have the dollar value of the machine you wish to buy at the end of 3 years. If, instead, you wanted to make annual deposits at the end of each of the next 3 years, how much should you deposit? What if those three equal deposits were made at the beginning of each year?

Your firm plans to upgrade its computer systems. The computers will be financed with a 5-year bank loan totaling $25,000. Your firm can obtain a loan at the prime rate and you are asked to provide this information to your firmâs management. Obtain this information from a local bank and use that interest rate to prepare an amortization schedule for the loan.

A recent court ruling concluded that a competitor had violated one of your patents without properly paying for its use. The court-ordered settlement provides the following annual payments to your firm:

Year	Payment
1	$150,000
2	125,000
3	100,000
4	75,000
5	50,000

Find the present value of these cash flows using a 6% discount rate.

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MGAB03H3 Lecture Notes - Lecture 4: Icq, Fixed Cost, Variable Cost

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