Group Assignment Relevance and cost behavior
Maccoa Soft, a division of Zayer Software Company, produces and distributes an automated payroll software system. A contribution margin format income statement for Maccoa Soft for the past year follows.
Revenue (12,000 units × $1,200) | $14,400,000 |
Unit-level variable costs |
|
Product materials cost (12,000 × $60) | (720,000) |
Installation labor cost (12,000 × $200) | (2,400,000) |
Manufacturing overhead (12,000 × $2) | (24,000) |
Shipping and handling (12,000 × $25) | (300,000) |
Sales commissions (12,000 × $300) | (3,600,000) |
Nonmanufacturing miscellaneous costs (12,000 × $5) | (60,000) |
Contribution margin (12,000 × $608) | 7,296,000 |
Fixed costs |
|
Research and development | (2,700,000) |
Legal fees to ensure product protection | (780,000) |
Advertising costs | (1,200,000) |
Rental cost of manufacturing facility | (600,000) |
Depreciation on production equipment (zero market value) | (300,000) |
Other manufacturing costs (salaries, utilities, etc.) | (744,000) |
Division-level facility sustaining costs | (1,730,000) |
Allocated companywide facility-level costs | (1,650,000) |
Net loss | $(2,408,000) |
Required
a. Divide the class into groups and then organize the groups into three sections. Assign Task 1 to
the first section, Task 2 to the second section, and Task 3 to the third section. Each task
should be considered independently of the others.
Group Tasks
(1)Assume that Maccoa has excess capacity. The sales staff has identified a large franchise company with 200 outlets that is interested in Maccoa’s software system but is willing to pay only $800 for each system. Ignoring qualitative considerations, should Maccoa accept the special order?
(2)Maccoa has the opportunity to purchase a comparable payroll system from a competing vendor for $600 per system. Ignoring qualitative considerations, should Maccoa outsource producing the software? Maccoa would continue to sell and install the software if the manufacturing activities were outsourced.
(3)Given that Maccoa is generating a loss, should Zayer eliminate it? Would your answer change if Maccoa could increase sales by 1,000 units?
b. Have a representative from each section explain its respective conclusions. Discuss the
following.
(1)Representatives from Section 1 should respond to the following: The analysis related to the special order (Task 1) suggests that all variable costs are always relevant. Is this conclusion valid? Explain your answer.
(2)Representatives from Section 2 should respond to the following: With respect to the outsourcing decision, identify a relevant fixed cost and a nonrelevant fixed cost. Discuss the criteria for determining whether a cost is or is not relevant.
(3)Representatives from Section 3 should respond to the following: Why did the segment elimination decision change when the volume of production and sales increased?
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.