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© 2012 Pearson Prentice Hall. All rights reserved. 1-1 This presentation includes: Exercises 1-18, 1-21 Problem 1-25

Chapter 1 problem review

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Page 1: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-1

This presentation includes:

Exercises 1-18, 1-21

Problem 1-25

Page 2: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-2

Value chain and classification of costs Classify each of the cost items (a–h) as one of the business functions of the value chain shown in Exhibit 1-2 (p. 6).

Burger King, a hamburger fast food restaurant, incurs the following costs:

Exercise 1-18

a. Production

b. Production

c. Marketing

d. Marketing

a. Cost of oil for the deep fryer

b. Wages of the counter help who give customers the food they order

c. Cost of the costume for the King on the Burger King television commercials

d. Cost of children’s toys given away free with kids’ meals

Page 3: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-3

Value chain and classification of costs

e. Cost of the posters indicating the special “two cheeseburgers for $2.50” f. Costs of frozen onion rings and French fries

g. Salaries of the food specialists who create new sandwiches for the restaurant chain

h. Cost of “to-go” bags requested by customers who could not finish their meals in the restaurant

e. Marketing

f. Production

g. Design of products and processes (or Research and Development)

h. Customer service

Page 4: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-4

Exercise 1-21

Five-step decision-making process, manufacturing

Garnicki Foods makes frozen dinners that it sells through grocery stores. Typical products include turkey dinners, pot roast, fried chicken, and meat loaf.

The managers at Garnicki have recently introduced a line of frozen chicken pies. They take the following actions with regard to this decision.

Classify each action (a-g) as a step in the five-step decision-making process (identify the problem and uncertainties, obtain information, make predictions about the future, choose among alternatives, implement the decision, evaluate performance, and learn).

Page 5: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-5

a. Garnicki performs a taste test at the local shopping mall to see if consumers like the taste of its proposed new chicken pie product.

b. Garnicki sales managers estimate they will sell more meat pies in their northern sales territory than in their southern sales territory.

c. Garnicki managers discuss the possibility of introducing a new product.

Five-step decision-making process

Obtain information

Make predictions about the future

Identify the problem and uncertainties

Page 6: Chapter 1 problem review

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d. Garnicki managers compare actual costs of making chicken pies with their budgeted costs.

e. Costs for making chicken pies are budgeted.

f. Garnicki decides to make chicken pies.

g. The purchasing manager calls a supplier to check the prices of chicken.

Five-step decision-making process

Implement the decision, evaluate performance, and learn

Make predictions about the future

Make decisions by choosing among alternatives

Obtain information

Page 7: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-7

Problem 1-25

Strategic decisions and management accounting A series of independent situations in which a firm is about to make a strategic decision follow.1. For each decision, state whether the company is following a low price or a differentiated productstrategy.2. For each decision, discuss what information the management accountant can provide about thesource of competitive advantage for these firms.

Page 8: Chapter 1 problem review

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a. Roger Phones is about to decide whether to launch production and sale of a cell phone with standard features.

Low price strategy

Cost to manufacture and sell the cell phone

Productivity, efficiency and cost advantages relative to competition

Prices of competitive cell phones

Sensitivity of target customers to price and quality

The production capacity of Roger Phones and its competitors

Page 9: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-9

b. Computer Magic is trying to decide whether to produce and sell a new home computer softwarepackage that includes the ability to interface with a sewing machine and a vacuum cleaner. There isno such software currently on the market.

Differentiated product strategy Cost to develop, produce and sell new softwarePremium price that customers would be willing to pay due to product uniqueness Price of basic softwarePrice of closest competitive softwareCash needed to develop, produce and sell new software

Page 10: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-10

c. Christina Cosmetics has been asked to provide a “store brand” lip gloss that will be sold at discount retail stores.

Low price strategy

Cost of producing the “store-brand” lip gloss

Productivity, efficiency and cost advantages relative to competition

Prices of competitive products

Sensitivity of target customers to price and quality

How the market for lip gloss is growing

Page 11: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-11

d. Marcus Meats is entertaining the idea of developing a special line of gourmet bologna made with sun dried tomatoes, pine nuts, and artichoke hearts.

Differentiated product strategy Cost to produce and sell new line of gourmet bolognaPremium price that customers would be willing to pay due to product uniquenessPrice of basic meat productPrice of closest competitive product

Page 12: Chapter 1 problem review

© 2012 Pearson Prentice Hall. All rights reserved. 1-12