This Is Due Tonight1 Skiboards Inc Has Two Divisions The Boa

This Is Due Tonight1 Skiboards Inc Has Two Divisions The Boards D

This assignment involves analyzing various managerial and financial decision-making scenarios related to divisions within companies, including preparing income statements, evaluating cost advantages, calculating return on investment (ROI), comparing relevant costs for capital expenditure decisions, and assessing fixed and variable costs in operational choices. The tasks require a detailed quantitative analysis and a discussion of the implications of these financial metrics on managerial performance and strategic decisions, supported by credible sources and proper citations.

Paper For Above instruction

Skiboards Inc., a company with two divisions—the Boards division and the Ski division—demonstrates how internal transfer pricing and divisional performance metrics can influence overall company profitability and strategic decisions. The Boards division manufactures the boards used by the Ski division to produce Skiboards and also sells to external customers. For 2011, the division's financial data show the selling price per board at $52, variable costs at $22 per board, with 8,000 boards sold to the Ski division and 2,000 boards sold externally. The sales to the Ski division occurred at the same price as external sales, implying an internal transfer price of $52 per board. The Ski division further processes these boards, incurring an additional $100 in variable costs per board, and then sells the finished Skiboards at $300 each.

To analyze these divisions, one would prepare separate income statements considering sales revenues, variable costs, and contribution margins. The Boards division’s income statement would calculate revenue from external and internal sales, subtracting variable costs to find contribution margin. For the Ski division, costs include the $52 transfer price for the boards plus the $100 processing costs, with revenue from sales at $300 and variable costs also including the processing costs. The consolidated income statement for Skiboards, Inc. would aggregate the divisional results, removing double counting of transfer prices to reflect the overall profitability.

In evaluating whether the Boards division should sell the additional 1,000 boards to the Ski division next year, or continue to sell externally, the company must consider capacity constraints and opportunity costs. Given the capacity limitation of 10,000 boards, and the desire of the Ski division to increase purchase to 9,000 boards, it is economically advantageous from a corporate perspective to prioritize internal sales to maximize the overall profit. The relevant analysis involves comparing the contribution margin of selling internally versus externally, considering the transfer price, variable processing costs, and the potential lost external sales revenue.

Magic Lawnmower Company encounters a different decision-making scenario involving whether to manufacture blades or buy them from a vendor. The relevant costs for manufacturing include direct materials ($3.50), direct labor ($1.75), and variable manufacturing overhead ($4.25), totaling $9.50 per blade. The vendor’s pricing structure, which increases the cost to $10 for the first 5,000 blades and decreases to $9 for additional blades, is critical in the decision. The company expects to use 7,500 blades annually, making it financially prudent to compare the total manufacturing costs with the total purchase costs, factoring in the vendor’s pricing tier. Since manufacturing costs are $9.50 per blade, and the purchase price for the excess blades (beyond 5,000) drops to $9, the decision hinges on these cost considerations. Producing in-house costs are constant at $9.50 per blade, which exceeds the $9 purchase price for excess blades, so buying the blades could be more economical for the company.

Similarly, in assessing divisions for alternative investment analysis, Bienville Company's ROI calculations highlight division performance evaluation. The Top division’s ROI is 18% ($180,000 net operating income divided by $1,000,000 assets), and the Bottom division’s ROI is 18% ($630,000 net operating income divided by $3,500,000 assets). While both divisions show similar ROI percentages, the manager of the Top division appears to be performing slightly better because it generates a higher net operating income relative to assets. ROI is a useful, but limited, performance metric, as it may not account for units sold or sales growth potential, and can sometimes incentivize managers to prioritize short-term ROI over long-term strategic investments.

Furthermore, Punch Products Inc. considers whether to buy or lease a new production machine. The relevant costs in this comparison include increased revenue, additional direct costs (materials, labor, variable overhead), and relevant fixed costs. Fixed costs such as depreciation ($12,600) are sunk costs and, thus, irrelevant for the decision. The relevant costs are the incremental increases in operational costs and revenue associated with the new machine. If the increased contribution margin (additional revenue minus additional variable costs) exceeds the cost of acquiring or leasing from each vendor, the company should proceed with the purchase or lease that yields the higher net benefit.

Lastly, MOS Company’s decision to use its own delivery truck or hire a commercial carrier hinges on fixed and variable costs. The fixed costs include insurance ($2,500), licenses ($125), taxes ($150), and depreciation ($3,000). Variable costs include gasoline ($0.05/mile), tires ($0.02/mile), and repairs ($0.01/mile). For 60,000 miles, total operating costs are calculated by summing the fixed costs and the variable costs per mile multiplied by total miles. The average cost per mile is derived by dividing total costs by miles driven. When considering outsourcing, the relevant costs are the variable costs per mile and any savings or additional costs associated with hiring a carrier, excluding fixed costs like depreciation and license fees since these are fixed regardless of usage. Cost analysis helps determine whether owning or outsourcing is more economical, factoring in operating costs, service levels, and strategic considerations.

In conclusion, investment decisions, performance evaluation, and operational choices are driven by a detailed understanding of relevant costs and profit metrics. Managers should carefully analyze internal and external costs, capacity constraints, and strategic implications to optimize financial performance and support sustainable growth. Using credible sources such as managerial accounting textbooks and industry reports enhances the accuracy and validity of these decisions, ultimately strengthening corporate competitiveness.

References

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  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2015). Managerial Accounting (15th ed.). McGraw-Hill Education.
  • Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill Education.
  • Kaplan, R. S., & Atkinson, A. A. (2019). Advanced Management Accounting. Pearson.
  • Shim, J. K., & Siegel, J. G. (2016). Financial Management and Analysis. Barron’s Educational Series.
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  • Harvard Business Review. (2020). Guide to Cost Management Techniques. Harvard Business Publishing.
  • AccountingTools. (2021). Relevant Costs and Decisions. Retrieved from https://www.accountingtools.com

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