preview

Accounting Ram

Satisfactory Essays

ACC 312H – Spring 2012
Fundamentals of Managerial Accounting-Honors
Instructor – Will O’Hara (copyright 2009 © John Wiley & Sons)
Thursday, January 19, 2012
Chapter 2 – Indentifying and Estimating Costs and Benefits

|2.45 |Controllability and relevance (LO1). Rams Ramachandran is considering the wisdom of reducing the number of suppliers |
| |his firm uses. Currently, Rams uses 25 suppliers to purchase goods worth $2,500,000 per year. To manage the orders and |
| |coordinate with suppliers, Rams employs one manager and two clerical staff. The manager earns $65,000 per year and each|
| |clerical staff person earns $35,000 per year. (As VP, Rams earns $175,000 annually.) Reducing the number of suppliers | …show more content…

The 25 supplier option requires two. |
| |The difference is $35,000 in favor of the 6 supplier option. |
| |iii. Manager’s Salary- controllable but not relevant – for both options one manager is required, therefore, the same |
| |salary of $65,000 is paid by each option. The difference is 0. |
| |iv. Service quality cost savings – Controllable and relevant – With the 6 supplier option the company saves $100,000 in|
| |cost as opposed to no extra savings through the 25 supplier option. The difference is $100,000 in favor of the 6 |
| |supplier option. |
| |v. Rams’ salary- not controllable and not relevant- Ram’s decision does not have an immediate impact on his salary. As |
| |vice president, I would assume that this salary does not play a role in this decision therefore it is not controllable |
| |nor relevant. |
| | |
| |b) Relevant

Get Access