Managerial Planning and Decisions

TASK 1: MANAGERIAL PLANNING AND DECISIONS

a) A foreign distributor has asked Alarm to bid on a special order of 1,000 units of the basic component. There would be a special shipping charge of RM6,400. The Alarm manufacturing plant has excess capacity to manufacture more than 1,500 basic components and this order would not affect sales of the other products. Determine the minimum price that Alarm Bhd could offer.

product basic Total/ RM

Total cost per unit 92.60 92,600

Contribution Margin per unit 56.40 56,400

Special order units 1,000

Special shipping charges 6,400

The minimum price 155.40

The minimum acceptable price for a special order = the total relevant costs of the order per unit plus any opportunity cost (if applicable), divided by the number of units in the order

b) Determine the contribution margin per unit for each of the three products

Total Variable Cost = Total Quantity of Output * Variable Cost per Unit of Output

Contribution Margin = Sales Revenue - Variable Cost

Product HA15 HA27 HA33

Total cost per unit 93.60 149.60 190.60

Production volume 3,000 1,800 1,200

Total variable cost 280,800 269,280 228,720

Selling price 150 240 320

Sales revenue 450,000 432,000 384,000

Contribution margin 169,200 162,720 155,280

Contribution Margin per unit 56.4 90.4 129.4

c) Suppose there is excess demand for all three products and the plant is currently operating at capacity. The only change that can be made is shifting workers between department B and department C. personnel in those two departments are able to work in either area with no loss in efficiency. Determine the optimal monthly production mix of the three products. Check whether your answer changes if the price of model HA27 is RM280.

units made 3000 1800 1200

Available Product HA15 RM HA27 RM HA33 RM

303600 Labor 18 40 62

171600 Raw Material 7.6 19.6 16.6

Unit price 150.00 240.00 320.00

Variable cost 93.60 149.60 190.60

Demand / units 3000 1800 1200

Unit profit cont. 56.40 90.40 129.40

Profit 487,200.00

Available

Labor Used 200,400 hrs <= 303600 hrs

Raw Material Used 78,000 <= 171600

The price of model HA27 remains the same.

d) Why should decision makers focus only on relevant costs for decision making?

Because the Relevant costs are expected future costs that differ among the alternative courses of action being considered, which gives the decision makers a variety of choices.

TASK 2: DIVISIONAL PERFORMANCE AND ETHICS

Some people and organizations believe that the discussion of controllable and uncontrollable events is distracting in the sense that it encourages finger pointing and excessive preoccupation with assigning blame. These observers argue that it is more important to find solutions than to identify responsibility for unacceptable or acceptable events.

a) Discuss your views on this argument.

I believe that people in general and employees in particular must be held accountable for something to make them interested in improving performance, accordingly the issue of controllable versus uncontrollable must be addressed so that solutions are found.

The organization would likely move to team rather than individual measures of performance. All members of the team would be expected to deal with opportunities to improve performance. Therefore the question of whether any one item is controllable or not by an individual would disappear and be replaced by questions about group performance.

Recognize that there is a problem. This step is critically important because it forces us to acknowledge that there is an issue that deserves our attention and helps us separate moral questions from disagreements about manners and social conventions. The act does not translate into a moral problem involving right or wrong.

Determine the actor. Once we've determined that there is an ethical issue, they need to decide who is responsible for addressing the problem.

Gather the relevant facts. Adequate, accurate, and current information is important for making effective decisions of all kinds, including ethical ones.

Test for right-versus-wrong issues. A choice is generally a poor one if it gives you a negative result.

Test for right-versus-right values. Many ethical dilemmas pit two core values against each other. Determine whether two good or right values are in con¬flict with one another in this situation. Right-versus-right value clashes include the following:

 Truth telling versus loyalty to others and institutions. Telling the truth may threaten our allegiance to another person or to an organization, such as when leaders and followers are faced with the decision of whether to blow the whistle on organizational misbehavior.

 Short-term benefits versus long-term negative consequences. Sometimes satisfying the immediate needs of the group can lead to long-term negative consequences (endangering the future of the business).

 Justice versus mercy. Being fair and even-handed may conflict with our desire to show love and compassion.

6. Apply the ethical standards and perspectives. Apply the ethical principle that is most relevant and useful to this specific issue.

7. Looking for a third way. Sometimes