Hao

Xue

Managerial Accounting

2016 Spring

Decision Making in the Short-Term

Class handout
Class Objectives: We continue our journey on the examination of how the managerial accounting
information can help facilitate short-term decision making. Assuming our capacity (the
maximum value of an activity a company can sustain with available resources) is fixed, we are
going to learn
(1) how to apply CVP analysis when the firm produce multiple products
(2) how to fill in capacity when it is idle.
(3) how to ration capacity when it is scarce.

Problem 1
The Trend Yogurt Shoppe is entering its fifth year of operation. After overcoming several minor
difficulties in both the production and marketing of its product during the initial year of operation, the
shops situation has been steadily improving. However, the shop has the capacity to produce and sell
75,000 cups of yogurt a year, but only sold 32,000 cups in 2013 at a price of $3 a cup. In 2014, keeping
the price at $3 a cup, sales are projected to be 36,000 cups.
While Trends management tracks the cups of yogurt sold and total costs incurred each month, they are
woefully unaware of which costs do and do not vary with the cups of yogurt sold (i.e., which costs are
fixed and which costs are variable). Trends management is hoping that you can figure out their cost
structure and estimate the profitability of their proposed plan to increase demand. To this end, they
have provided you with the following data for the first 4 years of operations:

Year

Cups of Yogurt Sold

Total Costs

2010

8,000

$60,000

2011

20,000

$67,500

2012

22,000

$73,500

2013

32,000

$103,500

***Requirements are on the next three pages***

Hao Xue

Managerial Accounting

2016 Spring

Problem 2
LearningWare manufactures and distributes laptop computers. The company primarily markets its products to elementary,
middle, and high schools and their students around the country. LearningWare manufactures two models, the Standard and
Deluxe Laptop. The company uses the same production machinery to manufacture both of these laptops.
The company manufactures these two models to meet customer specifications and therefore does not keep an inventory of
completed laptops.
The projected 2014 annual data (budget) for LearningWare is found below.
Standard

Deluxe

30,000

20,000

$220.00

$330.00

Direct Material per unit

$50.00

$90.00

Direct labor per unit

$50.00

$70.00

Variable mfg. overhead per unit @ $12 per Machine Hour

$36.00

$60.00

Projected Sales volume

Price per unit

Machine Hours Total Capacity

Totals

230,000 Hours

Machine Hours Per Unit

Machine Total Hours (at projected sales)

3 Hours

5 Hours

90,000 Hours

100,000 Hours

Machine Hours Projected Excess Capacity

Fixed Manufacturing overhead

40,000 Hours

$900,000

Selling and Administrative Costs (All Fixed)

190,000 Hours

$1,000,000

$1,900,000
$1,000,000

Noticing that LearningWare is projected to have excess capacity in 2014 (assume machine hours
is the only production constraint), management is considering several proposals to increase
demand. Management will implement at most one of the proposals described in parts A through
C on the pages that follow. Thus, evaluate each proposal independently.