Paper Products Division produces paper diapers, napkins, and paper towels. The divisional manager has decided that quality
Question:
Assume that all prevention costs are fixed and that the remaining quality costs are variable (unit-level).
Required:
1. Assume that the sales revenue for the year totaled $2 million, with sales for each product as follows: diapers, $1 million; napkins, $600,000; and paper towels, $400,000. Evaluate the distribution of costs for the division as a whole and for each product line. What recommendations do you have for the divisional manager?
2. Now, assume that total sales are $1 million and have this breakdown: diapers, $500,000; napkins, $300,000; and paper towels, $200,000. Evaluate the distribution of costs for the division as a whole and for each product line in this case. Do you think it is possible to reduce the quality costs to 5 percent of sales for each product line and for the division as a whole and, simultaneously, achieve an equal distribution of the quality costs? What recommendations do you have?
3. Assume total sales of $1 million with this breakdown: diapers, $500,000; napkins, $180,000; and paper towels, $320,000. Evaluate the distribution of quality costs. What recommendations do you have for the divisional manager?
4. Discuss the value of having quality costs reported by segment.
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Step by Step Answer:
Cornerstones of Cost Management
ISBN: 978-1111824402
2nd edition
Authors: Don R. Hansen, Maryanne M. Mowen