Accounting Ram
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 |
| |from 25 to 6 would allow Rams ' firm to free up one of the clerical staff. While the manager would supervise fewer |
| |people, she also would interact more with each supplier; thus, her workload would not change appreciably. |
| | |
| |Rams bargains aggressively with suppliers, and, with 25 suppliers, he was anticipating a 3% savings in purchase costs |
| |next year. With only six suppliers, however, each supplier would have greater bargaining power, eliminating Rams ' |
| |ability to reduce the prices paid for goods. Finally, Rams believes that better coordination with fewer suppliers would|
| |increase service quality (e.g., a lower risk of stock outs and other problems), and he estimates the cost savings at |
| |$100,000 per year. |
| | |
| |Required:
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 |
| |from 25 to 6 would allow Rams ' firm to free up one of the clerical staff. While the manager would supervise fewer |
| |people, she also would interact more with each supplier; thus, her workload would not change appreciably. |
| | |
| |Rams bargains aggressively with suppliers, and, with 25 suppliers, he was anticipating a 3% savings in purchase costs |
| |next year. With only six suppliers, however, each supplier would have greater bargaining power, eliminating Rams ' |
| |ability to reduce the prices paid for goods. Finally, Rams believes that better coordination with fewer suppliers would|
| |increase service quality (e.g., a lower risk of stock outs and other problems), and he estimates the cost savings at |
| |$100,000 per year. |
| | |
| |Required: