Cases in Cost Management

Business

Quiz 27 :
Sky View Manor

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Quiz 27 :
Sky View Manor

An optimal sourcing mix is defined as a number of attainment practices, which aimed at finding, estimating and engaging in best option/alternative of sources to maximize the profit. As an overall assessment of the presented case of Ringo Rag Company it seems that business is currently yielding a profit of img . So the business is running well. Table 1: Ringo Rag's current strategy's profit img Here are some alternative to choose: Option 1: Not to sort the scrap sourced from Junk dealers and sell entirely material as 'Grade C' rags. img The above table shows net profit increases to img from img previously. Option 2: Do not sort the rags sourced from the Commercial laundries too in addition to not sorting the rags acquired from the junk dealers. img The above table shows net profit increases to img from img previously. Option 3: Drop the junk rags completely and source from Laundries only because it avail cheaper scraps than Textile converters. img The above table shows net profit decreases to img from img previously. Therefore from analyzing all above calculated results and observation it is recommended that option 2 is more profitable and optimal. As eliminate the grading process in total and sell the entire material from Laundries and Dealers as 'Grade C' rags. Hence this company is still left to achieve an optimal sourcing mix.

Computation of profitability by grade Profitability : It refers to the state of yielding a financial gain or profit through a project or investment. The profitability of the provided case can be calculated as follows: Step 1: To calculate direct material cost from each source img s Step 2: To calculate direct labor cost img Step 3: To calculate manufacturing overhead and period cost Manufacturing overhead is drawn to the extent feasible. The unallocated amount given is treated as a period expense for the process: img Step 4: To calculate profit % for each grade img Step 5: To calculate total profit img Conclusions : The above profit analysis shows the following observations: 1. The net profit is $2,370. 2. The sale price of Grade B and Grade C products is similar. 3. The material sourced from Textile is comparatively more expensive than from Junk Dealers. Yes, the profitability analysis is necessary for making decisions regarding input costs, which affect the entire investment.

Computation of profitability Profitability : It refers to the state of yielding a financial gain or profit through a project or investment. The profitability of the provided case can be calculated as follows: Step 1: To calculate direct material cost from each source img Step 2: To calculate direct labor cost If it is decided not to sort the rags sourced from the junk dealers and to sell all the material as Grade C@ $12.5 per cwt. img Step 3: To calculate manufacturing overhead and period cost Manufacturing overhead is drawn to the extent feasible. The unallocated amount given is treated as a period expense for the process: img Step 4: To calculate profit % for each grade img Step 5: To calculate total profit img Conclusions : The above profit analysis shows the following observations: 1. The cost of rags sourced from junk dealers falls to $8.75 per cwt from $10.75 calculated previously. 2. The total cost and total revenue both comes down to $14,505 and $17,175 respectively. 3. The net profit increases to $2,670 from $2,370 previously. Therefore from the above calculated results and observations it is recommended not to sort the scrap sourced from junk dealers and to sell all material as Grade C rags.