Non Recurrent Manufacturing And Selling Analysis (Essay Sample)

Managerial decisions making:
Name:
Institutional affiliation:
Date:
Non recurrent manufacturing and selling analysis
Non-recurring manufacturing and selling are situations which are daily faced by accountants and sales controllers when doing analysis for manufacturing and sales functions which is a best strategy for choosing the alternative and quickest sales course of action(Hammond, Keeney, Raffia (1998).). In the short run the accountant is faced with an, accept or reject of the given order, make or buy, utilization of limited resources, add or drop a certain line of product, sell or process further. This will face the manager or the accountant with re-examining all the possible probabilities and come up with the best decision that will maximize the profits of the firm. Before venturing into analysis there are fundamental principles that one need to put into considerations
>Relevant costs -the ultimate decisions in calculations rest upon cost data analysis .cost data are most vital in many decisions as they are the backbone for calculations of profit of the firm .Not all costs are however important to decision making and professionals should identify the one important for calculation and relevant to such decisions. Such costs are referred to as relevant costs (Norris, 2001). They are the expected costs which in future differ in line to decision alternatives. Costs like sunk cost are not relevant to such a decision as they are already incurred in past and they make no difference. The method that uses the concept of relevant costs is called incremental analysis which involves gathering all costs associated with the alternatives, drop sunk costs and finally select best alternative based on the available remaining data. Decision however involves choosing between the alternatives putting components such as revenue differences, opportunity costs, cost differences and cost savings differences (Hammerers, Marshall Pirmohamed (2002).)
In our given question we have the following available data

Per Unit

Total

Direct materials

$5

$40,000

Direct labor

$4

$32,000

Variable factory overhead applied

$4

$32,000

Fixed factory overhead applied (150% of direct labor cost)

$6

$48,000

Total Cost

$19

$152,000




An outside supplier has offered to supply the sub-assembly in this component for $16 per unit. The required number of units is 8000 units
Calculating the budget for the supplier will be supplying
(8000*16$) =$128000
Fixed overhead (which is irrecoverable amounts to) 2/3*$48000
(2/3)*48000=32000
The total cost for supplier hence will be $32000+$128000
=$16...