Question 1
For financial reporting, the common input cost needs to be allocated to the joint products. One needs to take care that the resulting information cannot mislead the managers concerning the profitability of the joint cost. A joint cost needs to be allocated to the joint product by allocating the particular cost based on physical output quantity (Jiambalvo, 2018) . It is, therefore, reasonable to allocate an equal joint cost share for each of the products because the process of production results in an equal physical output quantity. It is also crucial to notice that the total joint cost will always be incurred regardless of what the firm may do with the joint products beyond the point of split-off. It is, therefore, irrelevant for any decision concerning a particular joint product since the joint cost does not increase to the production of a particular individual product.
However, the joint cost is always relevant to the decisions that involve a group of joint products. Production of all joint products should stop if the total income from the sale of the particular joint product is less than the joint cost. A better technique of joint costs allocation is using the relative value of sales. The joint cost amount that is allocated to products is based on the relative sales value of the products at the split-off point within this method.
Delegate your assignment to our experts and they will do the rest.
A variety of qualitative factors must be considered in decision-making. These factors include the quality of goods, customer services, and employee morale. These qualitative factors are often more important than cost and benefits that may be easier to quantify (Jiambalvo, 2018) . For instance, the morale of employees may suffer when a company or a firm decides to purchase a particular component outside and the employees are fired as a result. The particular cost of reduced morale to the company is difficult to quantify. However, it may have a significant effect on the quality and quantity of the products that are produced by the remaining employees.
Question 2
Year one financial impact of outsourcing ground maintenance.
Cost to outsourcing 300,000
Cost savings:
Equipment sale 30,000
Salary of gardeners 195,000
Fuel cost 12,000
Fertilizer 10,000 (247,000)
Excess cost of outsourcing 53,000
Therefore, the company will eventually incur 30,000 dollars in one year while outsourcing grounds maintenance. Therefore, the company will pay 53,000 dollars more while outsourcing than the cost of carrying out the function.
Saving in the first year will be different from that of the first year in that it will be less than the year one savings. That is because of the depreciation of tractors, mowers, and some other miscellaneous equipment.
The companies that are considering outsourcing needs to carefully consider the qualitative factors. For instance, in the current scenario, the qualitative factors that should be put into consideration include the quality of the sold equipment, the morale of the gardeners, and the services that are rendered to the customers. These factors are the most critical aspects of the decision.
Question 3
Many companies make us f cost-plus pricing because of the difficulty of estimating the demands functions. With this approach, the company begins with estimating the cost of the products and adds the mark-up price to arrive at the price that will eventually allow a reasonable profit level. Among the key advantages of the cost-plus approach is its simplicity to apply. Besides, a firm may earn a reasonable profit if a sufficient quantity is sold at the specified price. However, the cost-plus pricing also comes with some limitations (Jiambalvo, 2018) . For instance, it is difficult to choose the markup percentage to use. There is a need for considerable judgment in and experimenting with the different mark-ups before deciding on the particular mark-up to use.
Additionally, the problem with cost-plus pricing is that it is inherently circular for manufacturing companies. One needs to estimate the demands for the determination of fixed manufacturing cost per unit such that one can mark up the cost of obtaining a price. However, the price has an effect on the quantity demanded. That is to say, when the price is high, the quantity that will be demanded most products will below. This circular process of increased price leading to decreased demand, and increased cost per unit leading to an increase in price, is not a useful strategy by most companies.
Most companies are using target costing. The technique is an integrated approach to determine the features of the product, product price, product cost, and product design (Jiambalvo, 2018) . These help in assuring that the company will earn a fair profit on the newly produced products. The process begins by analyzing the competing products and the needs of the customers. That leads to specifying the features of the product that will eventually attract customers. The second step is the specification of the desired profit level. The price and the desired profit helps one come up with the target cost.
Question 4
Quantity Price Variable cost CM/Unit Total CM Fixed cost Profit
450 $65.99 $15 $50.99 $22,945.5 $7,000 $15,945.5
725 $55.99 $15 $40.99 $29,717.75 $7,000 $22,717.75
800 $45.99 $15 $30.99 $24,792 $7,000 $17,792
1,000 $35.99 $15 $20.99 $20,990 $7,000 $13,990
1,300 $25.99 $15 $10.99 $14,287 $7,000 $7,287
The price that maximizes the company profit is 55.99 dollars per quantity. From the above calculations, it will result in 22.717.75 dollars as the profit made out of only 725 quantities.
References
Jiambalvo, J. (2018). Managerial Accounting (6th ed., pp. 150-350).
