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Alberta Gauge Company, Ltd

Psychological Assessment (3 credits) (The University of Arizona Global Campus)

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Alberta Measure Firm, Limited., a little production firm within Calgary, Alberta, makes 3 varieties of electric
features utilized in a number of equipment. For several years the business continues to be rewarding and it
has managed with capability. Nevertheless , within the last 2 yrs, costs upon most of features had been de-
creased plus promoting expenditures improved to satisfy competitors and maintain the rose working with
capability. Second-quarter outcomes for your present season, which usually stick to, typify latest encounter.
JoAnn Brower states that will Alberta Measure Company’s product-line revenue declaration for your 2nd one
fourth is not really ideal for examining plans plus producing choices like the types recommended simply by
Alice Carlo. Compose the memo in order to Alberta Gauge’s leader that will tackles the next factors.
the. Describe exactly why the particular product-line revenue declaration since displayed is not really ideal
for evaluation plus making decisions.
m. Explain an alternative solution income-statement structure that might be more desirable meant for eval-
uation plus making decisions, plus describe exactly why it is best.
second . Utilize the working information displayed meant for Alberta Measure Firm plus imagine the particu-
lar president’s suggested intervention have been applied at the outset of the 2nd one fourth. After that as-
sess the president’s offer simply by particularly addressing the next factors.
the. Are usually each one of the 3 recommendations most affordable? Assistance your own dialogue by hav-
ing an evaluation that will displays the web effect on revenue just before fees for every from the 3 recom-
mendations.
m. Was your leader right within suggesting the fact that R-gauge range end up being removed? Describe
your own solution.
d. Was your leader right to promote the particular Q-gauge range as opposed to the E-gauge range? De-
scribe your own solution.
m. Really does the particular suggested intervention create efficient technique company’s capability? De-
scribe your own solution.
several. Any kind of qualitative elements that will Alberta Measure Company’s administration should think
about just before this falls the particular R-gauge range? Describe your own solution.

Solution
Necessary
1 . Joann Brower says that Alberta Gauge Company’s product-line income statement for the second quarter
is not suitable for analyzing proposals and making decisions such as the ones suggested by
Alice Carlo. Write a memo to Alberta Gauge’s president that addresses the following points.
a. Explain why the product-line income statement as presented is not suitable for analysis and
decision making.

To:

Alice Carlo, President, Alberta Gauge Company, Ltd.

From:

Subject:

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Suggested revision of product-line income statement

The income statement is presented on an absorption-costing basis and therefore is not suitable for analysis
and decision making. The absorption costing t does not distinguish between variable and fixed costs. In addi-
tion the statement does not distinguish between costs that are directly related (traceable) to a product line
from those that are shared among all products.

b. Describe an alternative income-statement format that would be more suitable for analysis and
decision making, and explain why it is better.
An alternative income statement format that would be more suitable for analysis and decision making would
incorporate the contribution approach. According to this approach expenses would be classified in terms of
variability and controllability such as: variable manufacturing, variable selling and administrative, direct fixed
controllable by segment, direct fixed controllable by others, and common fixed. The common fixed costs
would not be assigned to the product lines which have been assigned under absorption costing. The contri-
bution approach is more suitable for analysis and decision making

2 . Use the operating data presented for Alberta Gauge Company and assume that the president’s
proposed course of action had been implemented at the beginning of the second quarter. Then
evaluate the president’s proposal by specifically responding to the following points.
a. Are each of the three suggestions cost-effective? Support your discussion with an analysis that
shows the net impact on income before taxes for each of the three suggestions.

The suggested discontinuance of the R-gauges would be cost effective, but the suggestions relating to E-
gauges and Q-gauges would not be cost effective. These conclusions are based on the following quarterly
analysis.
Note; Solution is in excel file
b. Was the president correct in proposing that the R-gauge line be eliminated? Explain your answer.
Yes, the president was correct in eliminating the R-gauges because R-gauge sales price covers only its vari-
able cost and does not contribute anything to manufacturing overhead or promotion costs. As a result of it
the R-gauge has a zero contribution margin.

c. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? Explain your an-
swer.
Yes, the president was correct in promoting the Q-gauge line rather than the E-gauge line, because the unit
contribution margin and contribution per labor dollar is greater for the Q-gauge line as follows:

Particulars

E-Gauge
Q-Gauge
Unit contribution

$19. 00
$74. 00
Contribution per direct-labor dollar (19/20), (74/40)

. 95
1 . 85

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However , the president’s decisions regarding promotion expense do not seem well as the decreased pro-
motion on the E-gauge line and the increased promotion on the Q-gauge line do not produce sufficient con-
tribution to cover the promotional costs.

d. Does the proposed course of action make effective use of the company’s capacity? Explain your answer.
No . The proposed course of action does not make effective use of capacity. The 15 percent increase in pro-
duction volume on the Q-gauge line will not require all of the capacity that has been released by discontinu-
ing the R-gauge line or reducing the E-gauge line by 50 percent.

3. Are there any qualitative factors that Alberta Gauge Company’s management should consider before it
drops the R-gauge line? Explain your answer.
The following factors to be considered
1)Customer relations; Customer relations is an important factor because the customer of sale of one gauge
is related to the sale of other gauge.
2)Labor relations; If we discontinue R gauge after that decreasing work might cause labour complications

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