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ACC20014 - Playdough Company - Report

10 Pages2745 Words80 Views
   

Swinburne University of Technology

   

Management Decision Making (ACC20014)

   

Added on  2020-03-01

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ACC2001 - Playdough Company This report focuses on the decision-making process at Playdough Company. Playdough manufactures and sells playdough canisters. This report analyses the decisions to make or buy(outsource)canisters, accept or reject a special offer to sell the company’s product at a lower price, and the implications of adding a new product line.

ACC20014 - Playdough Company - Report

   

Swinburne University of Technology

   

Management Decision Making (ACC20014)

   Added on 2020-03-01

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Playdoug Company 1Playdough Company Report Student’s NameName of CourseProfessor’s NameName of the UniversityCity and StateDate
ACC20014 - Playdough Company - Report_1
Playdoug Company 2Executive SummaryThis report focuses on the decision making process at Playdough Company. Playdough manufactures and sells playdough canisters. This report analyses the decisions to make or buy (outsource) canisters, accept or reject a special offer to sell the company’s product at a lower price and the implications of adding a new product line. The evaluation is based on the associated costs and benefits arising from a given course of action.
ACC20014 - Playdough Company - Report_2
Playdoug Company 3PLAYDOUGH COMPANY REPORT a) Cost per Unit of Producing a Canister using the Traditional ApproachThis approach is based on the assumption that the volume of output is the underlying contributor to the firm’s overhead costs. The unit cost of producing a canister using the traditional approach is given as followsItemCost Direct materials $ 300,000.00 Direct labour 12000 hrs at $15 per hr $ 180,000.00 Variable overhead $10 per direct labour hr $ 120,000.00 Fixed overhead $45 per direct labour hr $ 540,000.00 Total cost $ 1,140,000.00 Cost per Unit = Total Production Costs / Number of Units Produced = $1,140, 000 / 760,000 Units = $1.5 per unitb) Make or Buy DecisionThe decision by Playdough Company to make the canisters internally or to purchase them externally from the Canister Company is what is commonly referred to as make or buy decision in management accounting (Garrison, Noreen, Chesley, and Carrol, 2000, p.422). This decision can also be thought of as outsourcing. The decision is based on the identified relevant costs and benefits. This is often achieved by using relevant-costing approach and activity-based costing (ABC) system. (i)Relevant Cost Approach. In order to make this decision, Playdough needs to take into consideration the relevant costs. According to Williams, Haka, and Bettner (2008, p.327), the value of the relevant costs is determined by the level of activity or the type of alternative activities being undertaken by the company. It is important that the company identifies the relevant costs and benefits for two reasons. Firstly, the process of acquiring, interpreting, and presenting information is often time-consuming and costly, by only paying attention to the relevant data; the accountant can simplify and reduce the time spent. Secondly, it has been established that people only effectively make use of limited information; compilation of large
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