Managerial Accounting
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Parrish Plumbing provides plumbing services
to residential customers from Monday through Friday. Ken Parrish, the owner, believes
that it is important for his employees to have Saturday and Sunday off to spend
with their families. However, he also recognizes that this policy has implications for
profitability, and he is considering staying open on Saturday.
Ken estimates that if his company stays open on Saturday, it can generate $2,000
of daily revenue each day for 52 days per year. The incremental daily costs :will be
$600 for labor, $400 for parts, $40 for transportation, and $100 for office staff. These
costs do not include a share of monthly rent, or a share of depreciation related to office
equipment.
Ken is determined not to have employees work on Sunday, but he would like to
know the opportunity cost of not working on Saturday. Provide Ken with an estimate
of the opportunity cost, and explain why you do not have to consider rent or depreciation
of office equipment in your estimate.
Below is a performance report that compares budgeted and actual profit in the sporting
goods department of Maxwell's Department Store for the month of December.
Required
a. Evaluate the department in terms of its increases in sales and expenses. Do you believe
it would be useful to investigate either or both of the increases in expenses?
b. Consider storewide electriCity cost. Would this cost be a controllable or a noncontrollable
cost for the manager of sporting goods? Would it be useful to include a share
of storewide electriCity cost on the performance report for sporting goods?
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The solution explains two questions relating to managerial accounting
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