Chapter 23: Serial Problem

SP 23: Business Solutions - Sales Mix Analysis Scenario: Santana Rey from Business Solutions is facing high demand for computer desks and chairs but has a limited capacity of 1,015 direct labor hours. The goal is to determine the best sales mix to maximize contribution margin. Solution: 1. Determine Contribution Margin per Labor Hour for Desks and Chairs: o Contribution Margin (CM) per unit = Selling Price - Variable Costs. o CM per Labor Hour = CM per unit / Labor Hours per unit. 2. Prioritize Production Based on the Highest CM per Labor Hour: o If demand is unlimited, allocate labor hours to the product with the highest CM per labor hour first, then the next best option if any hours remain. o If demand is limited for one of the products, adjust the mix accordingly to make the most profitable use of the available labor hours. 3. Calculate Total Contribution Margin based on the chosen sales mix. AA 23-1: Time and Materials Pricing - Apple Scenario: Apple’s AppleCare program involves device service and repair. Compute costs related to direct labor and materials. Requirements: 1. Compute Time Charge per Hour of Direct Labor: o Time Charge = Direct Labor Cost + Overhead for non-materials + Target Profit. 2. Compute Materials Markup: o Materials Markup (%) = (Materials-Related Overhead Costs + Target Profit) / Direct Material Costs. 3. Time and Materials Pricing: o Price = (Time Charge per Labor Hour × Labor Hours) + (Direct Material Costs × Materials Markup %). AA 23-2: Google’s Cost Analysis for Competing with Apple Scenario: Google wants to develop a laptop priced at or below Apple’s $1,199. They plan to produce 20,000 units with a target markup of 25%. Solution: 1. Calculate Google’s Total Cost per Unit: Total Costs include all variable and fixed costs expected for 20,000 units. 2. Determine Dollar Markup per Unit: o Markup per Unit = Total Cost per Unit × Target Markup %. 3. Calculate Google’s Selling Price: o Selling Price = Total Cost per Unit + Markup per Unit. o AA 23-3: Service Cost Comparison - Apple vs. Samsung Scenario: Apple and Samsung are competing in service and repair programs. Perform a time and materials cost analysis. Solution: 1. Calculate Time Charge per Labor Hour for Both Companies. 2. Compute Materials Markup for Both Companies. 3. Determine Total Price Quote Using Time and Materials Pricing for a Specific Job. Discussion Questions Key Concepts 1. Five Steps in the Managerial Decision-Making Process: o Define the problem. o Identify alternatives. o Gather and analyze information (relevant costs, revenues). o Make the decision. o Implement the decision and follow up. 2. Nonfinancial Information can influence decisions, such as brand reputation, employee morale, or environmental impact. 3. Relevant Costs: o Incremental Costs: Additional costs from a decision. o Avoidable Costs: Costs that can be eliminated if an activity is discontinued. 4. Incremental Revenues are the additional revenues from choosing one option over another. 5. Qualitative Factors: Consider customer satisfaction, market trends, employee impact, and brand reputation. Problem Solutions Overview BTN 23-1: Special Offer Ethical Decision for Convertco Scenario: Convertco receives a special offer at $25 below its standard price. Variable costs are $42/unit, which include a $4 sales commission. Solution: 1. Controller’s Contribution Margin Calculation: o Selling Price: $40. o Variable Costs: $42 (including $4 commission). o Contribution Margin: $40 - $42 = -$2/unit. 2. Asiago’s Commission Adjustment: o New Commission: $2/unit. o New Variable Costs: $42 - $4 + $2 = $40. o Contribution Margin: $40 - $40 = $0/unit. 3. Decision Considerations: o Financially, a zero contribution margin means the special offer doesn't contribute to fixed costs or profits. o Other factors: potential future business, customer relationship, longterm profitability. BTN 23-2: Greeble’s Sporting Goods - Discontinuing the Golf Department Solution: 1. Consider relevant costs like avoidable fixed costs, contribution margins, and the impact on remaining departments. 2. Evaluate the long-term implications on customer loyalty and store reputation. BTN 23-4: Eye Symmetry’s Sales Mix Decision Scenario: Max Stewart makes surfboards with limited labor hours. Two products (Short and Long boards) need optimal sales mix allocation. Solution: 1. Unlimited Market Scenario: o Prioritize production based on the highest contribution margin per labor hour. 2. Limited Market Scenario for Short Boards: o Adjust production mix to meet market constraints for Short boards and use remaining labor capacity for Long boards. 3. Calculate Total Contribution Margin based on the final mix. These solutions cover a variety of decision-making scenarios, from product mix strategy to detailed pricing methods, aligning with managerial goals and maximizing profitability.