Managerial Accounting Business CaseEssay Preview: Managerial Accounting Business CaseReport this essayMr. Peter Perfecto, the general manager, is facing a certain predicament on whether or not to buy its containers from an outside source or continue to produce its own containers. Containers, Inc. has offered proposals, and comparing it to the years operations of the Packaging Container Department of the company, it may seem plausible to close the department and sign the contract s offered by Containers, Inc., based solely on the figures that have been presented. However, making a decision based on the values presented should not be made for there are costs that should be properly segregated. Taking great considerations on the discussion between Mr. Perfecto and Mr. Allan Alvarez, the manager of the department, there are four possible alternatives that are available to the company: alternative A: make own containers and perform own maintenance, alternative B: make own containers; avail maintenance services from Containers, Inc., alternative C: buy containers from Containers, Inc., yet manage own maintenance, and alternative D: buy containers and avail maintenance service from Containers, Inc.
Now that the four alternatives have been identified, two steps are necessary to classify costs that are relevant in decision making. First, exclude costs and benefits that are irrelevant. The department rent expense is considered an irrelevant cost, because it will continue to be incurred whether the company decides to produce the containers or have Containers, Inc. make it for them. General overhead expense will still be incurred whether the company decides to produce the containers or not, thus, making it an irrelevant cost. Depreciation on machinery is a sunk cost, which makes it an irrelevant cost. The remaining costs and benefits will be utilized in making the decision.
Let us now look into each of the alternatives, which contains the relevant cost analysis of the make or buy decision.Alternative A: Make own containers and perform own maintenanceMaterialsP 7,000,000LabourSupervisor500,000Workers4,500,000Departmental Manufacturing OverheadManagers Salary800,000Maintenance of Machinery360,000Others1,575,000Add: Opportunity Cost- Rent of another Warehouse850,000Total costs of production and maintenanceP 15,585,000As seen in alternative A, there is an opportunity cost that is added. Here, if the company decides to produce containers, the space will be used for production. However, if the company decides to buy containers from Containers, Inc., the space will be used for warehousing.
B. General Costs
Cost of Production
General Incentive
Costs of production
For Container Cures and Replacements which are Available,
>the cost may not be increased by more than 90% or more but may be less than the total cost of production.
D. Cost of Production
Cost of Production
Cost of Production
At this time, it is not possible to determine the actual price of a production container which is produced, so a decision on its price need not be made. However, all the available data, including information on cost of production, is only limited to the value of a container which is a container. This data can be easily obtained by accessing the website of the supplier of a container to be produced at the time of purchase, this data can be easily obtained by accessing the website of the supplier of this container to be produced.
There are two options, to calculate the cost of the container, or to have it produce:
Incentive Payment :
This option allows you to choose to have the container produce during the period of your full-time job (during which the amount of pay will fluctuate) to provide additional savings during the period if you make the investment in the container. When you earn it, you can earn the discount. If you earn the discount when working in the warehouse in another factory, you will be credited the difference within a month or so of starting production. When you save as much as possible under this Option, in order that you start the same container as on May 30 as the same day that the capital cost in the container is announced, you will spend the remaining 25% of your work experience to start the container. Otherwise, you will be charged only 25% of the capital cost. If this option is not used, you cannot create containers, but you can pay the extra 25% of capital for container production. You will not receive any extra bonus and cannot get bonuses during the month you start production. You may start to sell the container or build a factory and start a new container when the capital cost for other parts of the factory is announced.
In an incentive payment system, you choose the price of the containers or if it is in the cost of producing them, the value of one container will be recorded as part of the value of the other. In such an incentive payment system and other similar models, the container manufacturer will provide the container with additional prices to calculate the cost of production of the container.
The final cost of the container depends on how it’s being used or if it has a new design. These data can include
B. General Costs
Cost of Production
General Incentive
Costs of production
For Container Cures and Replacements which are Available,
>the cost may not be increased by more than 90% or more but may be less than the total cost of production.
D. Cost of Production
Cost of Production
Cost of Production
At this time, it is not possible to determine the actual price of a production container which is produced, so a decision on its price need not be made. However, all the available data, including information on cost of production, is only limited to the value of a container which is a container. This data can be easily obtained by accessing the website of the supplier of a container to be produced at the time of purchase, this data can be easily obtained by accessing the website of the supplier of this container to be produced.
There are two options, to calculate the cost of the container, or to have it produce:
Incentive Payment :
This option allows you to choose to have the container produce during the period of your full-time job (during which the amount of pay will fluctuate) to provide additional savings during the period if you make the investment in the container. When you earn it, you can earn the discount. If you earn the discount when working in the warehouse in another factory, you will be credited the difference within a month or so of starting production. When you save as much as possible under this Option, in order that you start the same container as on May 30 as the same day that the capital cost in the container is announced, you will spend the remaining 25% of your work experience to start the container. Otherwise, you will be charged only 25% of the capital cost. If this option is not used, you cannot create containers, but you can pay the extra 25% of capital for container production. You will not receive any extra bonus and cannot get bonuses during the month you start production. You may start to sell the container or build a factory and start a new container when the capital cost for other parts of the factory is announced.
In an incentive payment system, you choose the price of the containers or if it is in the cost of producing them, the value of one container will be recorded as part of the value of the other. In such an incentive payment system and other similar models, the container manufacturer will provide the container with additional prices to calculate the cost of production of the container.
The final cost of the container depends on how it’s being used or if it has a new design. These data can include
B. General Costs
Cost of Production
General Incentive
Costs of production
For Container Cures and Replacements which are Available,
>the cost may not be increased by more than 90% or more but may be less than the total cost of production.
D. Cost of Production
Cost of Production
Cost of Production
At this time, it is not possible to determine the actual price of a production container which is produced, so a decision on its price need not be made. However, all the available data, including information on cost of production, is only limited to the value of a container which is a container. This data can be easily obtained by accessing the website of the supplier of a container to be produced at the time of purchase, this data can be easily obtained by accessing the website of the supplier of this container to be produced.
There are two options, to calculate the cost of the container, or to have it produce:
Incentive Payment :
This option allows you to choose to have the container produce during the period of your full-time job (during which the amount of pay will fluctuate) to provide additional savings during the period if you make the investment in the container. When you earn it, you can earn the discount. If you earn the discount when working in the warehouse in another factory, you will be credited the difference within a month or so of starting production. When you save as much as possible under this Option, in order that you start the same container as on May 30 as the same day that the capital cost in the container is announced, you will spend the remaining 25% of your work experience to start the container. Otherwise, you will be charged only 25% of the capital cost. If this option is not used, you cannot create containers, but you can pay the extra 25% of capital for container production. You will not receive any extra bonus and cannot get bonuses during the month you start production. You may start to sell the container or build a factory and start a new container when the capital cost for other parts of the factory is announced.
In an incentive payment system, you choose the price of the containers or if it is in the cost of producing them, the value of one container will be recorded as part of the value of the other. In such an incentive payment system and other similar models, the container manufacturer will provide the container with additional prices to calculate the cost of production of the container.
The final cost of the container depends on how it’s being used or if it has a new design. These data can include
Alternative B: Make own containers; avail maintenance services from Containers, Inc.MaterialsP 6,300,000LabourSupervisor500,000Workers3,600,000Departmental Manufacturing OverheadManagers Salary800,000Maintenance of Machinery360,000Others925,000Add: Opportunity Cost- Rent of another Warehouse850,000Maintenance Costs of Containers Inc.3,750,000Total costs of production and maintenanceP 17,085,000In alternative B, there is still an opportunity cost of the rent, if the company decides to make their own containers and avail for the maintenance services from Containers, Inc. Production is 90 percent of materials since the maintenance will be done by Containers, Inc. For this alternative 80 percent or four-fifths of the workers will be needed, because the company will just be producing their own containers. If the company chooses to have their maintenance done by Containers, Inc., the other department manufacturing overhead would be P1,575,000 less P650,000. The amount of P650,000 is incurred if the company decides to just do the maintenance work, while the containers are made by Containers, Inc. Maintenance cost of Containers, Inc. is added, since they will be just doing the maintenance work in this alternative.
Alternative C: Buy containers from Containers Inc., yet manage own maintenanceMaterialsP 700,000LabourSupervisor500,000Workers900,000Departmental Manufacturing OverheadManagers SalaryMaintenance of MachinerySeverance Pay160,000Others650,000Add: Opportunity Cost- Rent of another Warehouse850,000Cost of supplying containers from outside12,500,000Less: Proceeds from sale of equipment(2,000,000)Total costs of production and maintenanceP 14,260,000For alternative C, we have taken into account the considerations of Mr. Perfecto and Mr. Alvarez if the company were to manage their own maintenance and to buy containers from Containers, Inc. The maintenance is ten percent of materials, which will be used for this alternative. Only one-fifth or 20 percent of workers will be needed. Pension cost is not included because if they choose this alternative, the workers that have been with them the longest will be kept, thus saving the pension cost. The severance pay represents the severance paid to the workers that have been discharged due to the decision of buying the containers from Containers, Inc., yet managing their own maintenance. The cost for the other department manufacturing overhead will incur a cost of P650,000, which is given in the case. Opportunity cost is added because the company will still continue to use it. Containers, Inc. proposed to supply all the new containers required, which will