The Managerial ProcessEach of the following scenarios requires the use of accountinginformation to carry out one or more managerial accounting objectives.a. Laboratory Manager: An HMO approached me recently andoffered us its entire range of blood tests. It provided a price listrevealing the amount it is willing to pay for each test. In manycases, the prices are below what we normally charge. I need toknow the costs of the individual tests to assess the feasibility ofaccepting its offer and perhaps suggest price adjustments on someof the tests.b. Operating Manager: This report indicates that we have 30% moredefects than originally targeted. An investigation into the cause hasrevealed the problem. We were using a lower-quality material thanexpected, and the waste has been higher than normal. Byswitching to the quality level originally specified, we can reducethe defects to the planned level. c. Divisional Manager: Our market share has increased because ofhigher-quality products. Current projections indicate that weshould sell 25% more units than last year. I want a projection of theeffect that this increase in sales will have on profits. I also want toknow our expected cash receipts and cash expenditures on amonth-by-month basis. I have a feeling that some short-termborrowing may be necessary.d. Plant Manager: Foreign competitors are producing goods withlower costs and delivering them more rapidly than we can tocustomers in our markets. We need to decrease the cycle time andincrease the efficiency of our manufacturing process. There aretwo proposals that should help us accomplish these goals, both ofwhich involve investing in computer-aided manufacturing. I needto know the future cash flows associated with each system and theeffect each system has on unit costs and cycle time. e. Manager: At the last board meeting, we established an objectiveof earning a 25% return on sales. I need to know how many units ofour product we need to sell to meet this objective. Once I have theestimated sales in units, we need to outline a promotionalcampaign that will take us where we want to be. However, in orderto compute the targeted sales in units, I need to know the expectedunit price and a lot of cost information.f. Manager: Perhaps the Harrison Medical Clinic should not offer afull range of medical services. Some services seem to be having adifficult time showing any kind of profit. I am particularlyconcerned about the mental health service. It has not shown aprofit since the clinic opened. I want to know what costs can beavoided if I drop the service. I also want some assessment of theimpact on the other services we offer. Some of our patients maychoose this clinic because we offer a full range of services.Required:Select the managerial accounting objective(s) that are applicable foreach scenario: planning, controlling (including performanceevaluation), or decision making.
The Managerial Process
Each of the following scenarios requires the use of accounting
information to carry out one or more
a. Laboratory Manager: An HMO approached me recently and
offered us its entire range of blood tests. It provided a price list
revealing the amount it is willing to pay for each test. In many
cases, the prices are below what we normally charge. I need to
know the costs of the individual tests to assess the feasibility of
accepting its offer and perhaps suggest price adjustments on some
of the tests.
b. Operating Manager: This report indicates that we have 30% more
defects than originally targeted. An investigation into the cause has
revealed the problem. We were using a lower-quality material than
expected, and the waste has been higher than normal. By
switching to the quality level originally specified, we can reduce
the defects to the planned level.
c. Divisional Manager: Our market share has increased because of
higher-quality products. Current projections indicate that we
should sell 25% more units than last year. I want a projection of the
effect that this increase in sales will have on profits. I also want to
know our expected cash receipts and cash expenditures on a
month-by-month basis. I have a feeling that some short-term
borrowing may be necessary.
d. Plant Manager: Foreign competitors are producing goods with
lower costs and delivering them more rapidly than we can to
customers in our markets. We need to decrease the cycle time and
increase the efficiency of our manufacturing process. There are
two proposals that should help us accomplish these goals, both of
which involve investing in computer-aided manufacturing. I need
to know the future
effect each system has on unit costs and cycle time.
e. Manager: At the last board meeting, we established an objective
of earning a 25% return on sales. I need to know how many units of
our product we need to sell to meet this objective. Once I have the
estimated sales in units, we need to outline a promotional
campaign that will take us where we want to be. However, in order
to compute the targeted sales in units, I need to know the expected
unit price and a lot of cost information.
f. Manager: Perhaps the Harrison Medical Clinic should not offer a
full range of medical services. Some services seem to be having a
difficult time showing any kind of profit. I am particularly
concerned about the mental health service. It has not shown a
profit since the clinic opened. I want to know what costs can be
avoided if I drop the service. I also want some assessment of the
impact on the other services we offer. Some of our patients may
choose this clinic because we offer a full range of services.
Required:
Select the managerial accounting objective(s) that are applicable for
each scenario: planning, controlling (including performance
evaluation), or decision making.
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