Beruflich Dokumente
Kultur Dokumente
Chapter 6
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 6-1
Incremental cost includes all of the costs of the other alternative plus some additional costs.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Make-or-Buy Decisions
Managers often must decide whether to produce a product or service within the firm or purchase it from an outside supplier.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Make-or-Buy Example
Nantucket Nectars Company Cost of Making 12-ounce Bottles Total Cost for 1,000,000 bottles Direct material Direct labour Variable overhead Fixed overhead Total costs $ 60,000 20,000 40,000 80,000 $200,000 Cost per bottle $.06 .02 .04 .08 $.20
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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
Make-or-Buy Example
Another manufacturer offers to sell Nantucket the same part for $.18. If the company buys the part, $50,000 of fixed overhead would be eliminated. Should Nantucket make or buy the part?
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Buy
Per Bottle $.18
30,000 0 $210,000
.03 0 $.21
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Buy
Per Bottle $.18
0 $180,000
0 $.18
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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(000) Rent revenue Contribution from other products Variable cost of bottles Net relevant costs
Buy and use Buy and facilities rent out for other facilities products
$ 35 $ 55 (180) $(125)
(180) $(145)
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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The split-off point is that juncture of manufacturing where the joint products become individually identifiable.
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Joint Products
Split-off point Product A
Joint costs
Product B
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Joint costs are the costs of manufacturing joint products before the split-off point.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Split-off point
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Revenue
500,000 litres of YA @ RM0.16 = YA RM80,000 Processing costs: 500,000 litres of YA @ RM0.08 RM40,000
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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
Revenue - Y Separable costs beyond split-off @ $.08 Revenue X Joint processing Income effects
$30,000
$80,000
$50,000
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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remachine the parts for $30,000 and then sell them for $50,000, or
scrap them for $5,000. Which should it do?
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Scrap
5,000 0 5,000
Difference
$45,000 30,000 $15,000 0 $15,000
100,000 $ (95,000)
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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Cost Comparison
4 Years Together Keep Replace Difference Cash operating costs $20,000 Old equipment (book value): Depreciation, or 4,000 Lump-sum write-off Disposal value New machine acquisition cost Total costs $24,000 $12,000 4,000 (2,500) 8,000 $21,500 $8,000 2,500 (8,000) $2,500
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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How much, if any, would Sunshine save by buying the boxes from the external supplier?
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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The payment to supplier is $256,000-$192,000 = $64,000 less than the savings, so Sunshine would be $64,000 better off subcontracting the production of the boxes.
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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
Sell at splitoff:
Process further:
-Revenue -Additional
54,000
28,000
54,000
136,000
230,000 (190,000)
330,000 (300,000)
175,000 (100,000)
735,000 (590,000)
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
Sell at splitoff:
Process further:
-Revenue -Additional
54,000
28,000
54,000
136,000
230,000 (190,000)
330,000 (300,000)
175,000 (100,000)
735,000 (590,000)
processing costs 40,000 ACTION Sell @ splitoff 30,000 Process further 75,000 Process further
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145,000
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton