managerial decision makiing

8/3/2019 Managerial Decision MAkiing

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Managrial

DcisionMaking

By Mohammad

Ayaz Khan E (15)


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Question :

Question: Suppose Biondi Industries has a newopportunity to sell PST-4 at. the split offpoint for$3.80 per gallon. Prepare analysis showingwhether the should sell PST-4 at. the split offpointor continue to process this further?


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Analysis:BIONDI CHEMICAL

INDUSTRIESBiondi uses Net realizable value

Method to allocate Jointproduction cost.

Details.Details regarding Biondis operations for themonth ofOctober in joint Manufacturing costfor the month are $1700000 in themanufacturing of HTP-3, PST-4, and RJ-5.


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Analysis:

1PST-4 is a chemical used in theproduction of pesticide (A pesticide isany substance or mixture of substancesintended for preventing, destroying,repelling or mitigating any pest. Pestsinclude insects, plant pathogens,weeds, mollusks, birds, mammals, fish,nematodes (roundworms), andmicrobes that destroy property)


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Analysis:

2The production for the PST-4 inOctober is 350000 Gallons.

3Final sales value per Gallon is $6each.

4Final sales value is $2100000.


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Analysis:

5Additional processing Cost for thePST-4 is $816000.6 Proportion of PST-4 is 32.10%that is (HTP-3+PST-4+RJ-5) =

(1926000+1

284000+790000)=$4000000 which is final sales

value minus additional processingcost divided by net realizablevalue $2100000-816000/4000000*100).


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Analysis:

8Total sales Revenue beyond the Split offPoint is 6*35000=$2100000.

9New opportunity to sell PST-4 at the splitoff point is $30.80 per gallon.


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Analysis:

10The sales value before the split off point is6*350000=2100000 while the sales value at the

split off point is 3.80*350000=1330000. Whichgives an incremental sales value of 770000 thatis 770000/350000=2.20 per gallon. This 2.20 isthe incremental sales value which is Number

of units sold through a salespromotion offer in excess of the estimatednumber that would have been sold without it.


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Analysis:

11if we calculate the Additional processing costper gallon we would be able to calculate the

profit or loss of additional processing cost pergallon.

816000/350000=2.33

12By deducting the incremental sales value fromthe cost per gallon of the additional processingwe get the profit or loss.


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Entries Total Amount Per Gallon Amount

Per Gallon Sales Value 6*350000=$2100000 $6

before split off point

Less Per Gallon SalesValue after the split offpoint

3.80*350000=$1330000 $3.8

incremental Sales value $770000 770000/350000=$2.20

Less Additional processcost

816000/350000 $2.33

Loss/profit $45500 $0.13

Because the incremental sales Revenue is less then the Additional processingcost the company should not further process but sell PST-4 at the split offpoint.

managerial decision makiing

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