Kingfisher School of Business and Finance

Dagupan City

ACCTG 7.1/6.1

Resource Usage And

Tactical Decision-Making
Case Study No. 4
by

Group 6

Submitted by:
Fajardo, Ashley Jane T.
Formaran, Daryl Mae A.
Gallardo, Rowell S.
Garcia, Jan Rico S.
Garcia, Reign Mikaella P.
Gocheng, Rafael B.
Gordovez, Jema.

Submitted to:
Ma’am Auriane Solano
Acctg 7.1/6.1 Instructor
1. Computation
Revenues ($ 43,680)
CGS 26,180
Order Processing
($14,000 - 10% * $14,000) 12,600
($3,500 – 20% * $3,500) 2,800
Rush Orders 924
Customer Sales / Call sales 840
Total Costs $ 43,344
Profits $ 336

Operating Expense:
= ($14,000*10%) + ($3,500*20%)
= $1,400 + $700
= $ 2,100
Operating Income:
= ($2,100 - $1,764)
= $336

Therefore, Donnelly’s would turn out to be profitable because there is a net increase of
profits by $ 2,100 to $ 336 after taking into consideration the activity-based costs, so
CRS should not drop Donnelly’s.

2. Sara’s bonus is based on meeting sales targets. Based on the preceding information
regarding gross margin percentage, what might Sara have done last quarter to meet her
target and receive her bonus? How might CRS revise its bonus system to address this?

Donnelly's Pizza might be giving huge number of discounts that in effect had
made the gross margin percentage to drop. If CRS give awards and bonuses based on
sales not on the measuring of operating income, it might encourage sales
representatives to lower margins in order to increase sales. The company can also
enforce a stronger guideline about discounts in order to avoid the loss or dropping of the
gross margin percentage.

3. Should Justin rework the numbers? How should he respond to Sara’s comments
about making Donnelly’s look more profitable?

Justin should not rework the numbers presented on their record as he will
invalidate the ethical code of conduct for management accountants. Instead, he can ask
Sara to discuss with Donnelly whether they can reduce the orders that they are or will
be placing. Through this solution, Sara will be able to investigate the possible causes of
Donnelly’s rushed orders and maybe find a way to prevent this from occurring. Also, the
company will be able to lessen the amount of order processing and delivery cost if
Donnelly reduces the amounts of orders that they place.