Managerial Accounting and Organizational Controls - Assignment Example

Managerial Accounting and Organizational Controls Table shows the costs to be incurred by Minnetonka Corporation if it decided to manufacture the ski. At the 10,000 pair level of production, the company will be incurring $900, 000 annually. Table 1. Cost of In-house Production Table 2 shows the cost to be incurred if the company outsources its production of ski bindings. From per unit labor cost of $35, the cost will go down to $31.5 to reflect the 10% savings. This is also true with material and variable overhead which will be reduced by 20% and 10%, respectively. Meanwhile, a pair ski binding will cost $10.5. Total production cost will be lower at $895,000 per 10,000 pairs. Thus, it is better to outsource the ski bindings than to produce them in-house. Table 2. Cost of Production when Bindings are Outsourced 2. Looking at the cost structure of Minnetonka Corporation, the difference between producing in-house and outsourcing the binding is $5,000. At $10.5 per pair the cost, the company will purchase the 10,000 bindings with $105,000. Adding this, we get $110,000 allocation for the bindings for the supplier so that making and outsourcing are the same. Dividing this by the annual number of pairs will yield $11 which is the ceiling price that Minnetonka can be charged for ski-bindings. 3. Tables 3 and 4 shows the calculation if the new sales volume rise to 12,500 and new expense of $10,000 is allocated to equipment rental. In this situation, the company could still save if it chooses to outsource its bindings as it will not be bothered by the incremental allocation for equipment. Table 3. Cost of In-house Production Table 4. Cost of Production when Bindings are Outsourced 4. In any investment decision, the company's management should not only look at the numerical analysis but should also focus on the impact of its decision on qualitative factors. Minnetonka should look at its contracts with its current suppliers. Usually, these suppliers are affected as outsourcing the assembly of components will mean cutting back on orders. The company should also look at the willingness of its workforce. Outsourcing may mean terminating employees which could trigger resentment in the human resource. Also, the company should ensure that the company to outsource the ski binding meets the quality requirements of Minnetonka. Part 2. 1. Balance Scorecard Balanced scorecard is a new approach to strategic management developed by Drs. Robert Kaplan and David Norton to provide a clear description of the aspects that companies should measure to balance the financial perspective. According to them, balanced scorecard is a "management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action" (Balanced Scorecard Institute 1). It works by providing significant feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise (Balanced Scorecard Institute 2). Kaplan and Norton found that companies are using the scorecard in order to "clarify and update strategy, communicate strategy throughout the company, align unit and individual goals with strategy, link strategic objectives to long term targets and annual budgets, identify and align strategic initiatives, conduct periodic performance reviews to learn about and improve strategy" (Balanced Scorecard 4). 2. Economic Value Added The basic formula is: where , is the firm's return on capital, NOPAT is the Net Operating Profit After Tax and c is the Weighted Average Cost of Capital. Works Cited Balanced Scorecard Institute. "Balanced Scorecard." n.d. 28 July 2006 "Balanced Scorecard." Wikipedia: The Free Encyclopedia. 19 July 2006. 28 July 2006 Read More