Differential analysis involves knowing which costs are relevant, i.e. future costs that vary among alternatives. It is important to know what information to use and not just how to execute the analysis.
Herrestad Company receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,000 units. Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $150 per unit, direct materials costs will decrease by $12 per unit and Herrestad does not have to incur any variable selling and administrative expenses.
Make a list of the expenses and amounts that are relevant for this decision. How much with the sale of this product contribute to the profitability of Herrestad?
What if the company only pays $140 per unit? How does this change the contribution towards profitability?
If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision?
This is a Signature Assignment for ACC202 Module 5 SLP.
There are 2 specific learning outcomes: 1) apply business theories, models, and concepts to guide analysis of problems and situations and 2) utilize data driven analysis in making business decisions.
In this SLP assignment for Module 5 our emphasis will be on understanding the concept of relevant costs. You will be summarizing all of what you learned the in the Cases, SLPs and TDs.
The grading rubric below has been developed to measure student success in meeting the ACC202 Module 5 SLP expectations related to applying your knowledge of relevant costs in the budget process.
Demonstrates the ability to analyze content logically, concisely, and in an appropriate manner to understanding of relevant costs.
There is no logical sequence of information. Wording is rambling and unfocused.
Paper does not follow a logical sequence.
Paper follows a logical sequence. There are some minor problems with sub-classification and/or results are not clear.
Paper follows a logical sequence with a correct computation and results. Each cost relates to others in a carefully organized framework.
Demonstrates the ability to support a central point or viewpoint throughout the paper.
Insufficient elaboration and/or support (e.g., computation, each activity) in the paper.
Limited elaboration and/or support in the paper.
Support with some specific details and elaboration in the paper.
Support through both specific details and elaboration apparent in the paper.
Demonstrates familiarity with the concept of relevant costs.
The purpose is not identified, is unclear, or inappropriate in the paper.
Purpose is occasionally unclear in the paper.
Clear purpose, but not consistently sustained throughout the paper.
Clear purpose sustained throughout the paper.
Demonstrates the ability to gather and sort relevant costs in the budget process.
Does not have a grasp of information and appropriate data. Topic is poorly created. Supporting explanations are absent or vague. Trite ideas and/or unclear wording reflect a lack of understanding of topic.
Seems uncomfortable with information and data. Topic is evident but with little or no elaboration.
Seems comfortable with the accounting information and data. Topic is evident with some supporting details.
Demonstrates full knowledge of the topic with explanation and elaboration. The topic is well developed, effectively supported, and appropriate for the assignment. Critical thinking is clearly and creatively expressed. Data choices are well thought out.
Demonstrates the ability to use appropriate word choice and grammar in the paper.
There are many sentences with grammatical errors. Some sentences are incomplete/halting, and/or vocabulary is somewhat limited or inappropriate.
There are a few sentences that are complete and grammatical. Word choice is not always appropriate for presentation.
Sentences are generally complete and grammatical, and they flow together easily. With a few exceptions, words are chosen for their precise meaning.
All sentences are complete and grammatical, and they flow together easily. Words are chosen for their precise meaning. Word choice illustrates grasp of content and enhances explanation.
Demonstrates the ability to make an effective explanation outline that is free from bias.
Words chosen for an explanation are inappropriate and exhibits bias. Some readers may be confused.
Words chosen for the paper are free from bias with one or two minor exceptions.
Words have no apparent bias. There is some inappropriate explanation.
Words and explanation are completely free from bias.
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SLP 5 Assignment Expectations
Demonstrate familiarity with the concept of relevant costs.
Write 2-4 pages, showing computations and discussing the results.
List supporting references and cite sources.
Use appropriate writing style (organization, grammar, & spelling – see Writing Guidelines).
Financial budgets should not only provide a plan for the income statement but should also include the balance sheet. This enables the organization to consider potential cash-flow needs for your entire operation, not just as they pertain to income and expenses.
There are three major types of budgets: (1) operating budget, (2) financial budget, and (3) capital budget. They are all important, however, the emphasis is on the operating budget in this course.
An operating budget serves multiple purposes.
It forces managers and supervisors to plan
It provides information that can be used as a tool for improve decision making
It provides information that can be used for control and performance evaluations
It improves the functions of communication and coordination
Agrawal, N. K. (2010). Principles of Management Accounting, Global Media (read chapter 3), from Trident online library.
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011). Accounting Principles: A Business Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 108-113, 128-134, 165-169 and 181-183. http://textbookequity.com/oct/Textbooks/TBQ_PA_Accounting_managerial.pdf
Walther, L.M. (2010). Principles of Accounting: A Complete Online Text, chapters 21 and 22 (the section titled Traditional variance calculations for monitor cost and efficiency). Retrieved from http://www.principlesofaccounting.com/
Accounting for Management (n.d.). Target Costing Approach to Pricing. Retrieved from http://www.accountingformanagement.com/target_costing_pricing_products_and_services.htm