PART A

CASE STUDY 1
Panda Corporation has four operating divisions. During the first quarter of 2014,
the company
reported aggregate income from operations of $129,000 and the divisional
results shown below.

Division I
Division II
Division III
Division IV
Sales
$510,000
$400,000
$310,000
$170,000
Cost of
$300,000
$250,000
$270,000
$156,000
sales
Selling and
$60,000
$80,000
$75,000
$70,000
admin
expenses
Total profit
$150,000
$70,000
($35,000)
($56,000)
Analysis reveals the following percentages of variable costs in each division.
Cost of sales
Selling and
admin
expenses

Division I
70%
40%

Division II
80%
50%

Division III
70%
60%

Division IV
90%
70%

Discontinuance of any division would save 50% of the fixed costs and expenses
for that division. Top
management is very concerned about the unprofitable divisions (III and IV).
Consensus is that one or
both of the divisions should be discontinued.
Required:
A. Prepare an incremental analysis concerning the possible discontinuance of
i. Division III and
ii. Division IV.
B. Based on your analysis in above, what course of action do you recommend for
each division? Justify your recommendation.
C. Prepare a columnar condensed income statement for Panda Corporation,
assuming Division IV is eliminated. Division IVs unavoidable fixed costs are
allocated equally to the continuing divisions.
D. Reconcile the total income from operations ($129,000) with the total income
from operations without Division IV.

CASE STUDY 2

McCree Corporation had a bad year in 2013, operating at a loss for the first time
in its history. The companys income statement showed the following results from
selling 200,000 units of product: net sales $2,400,000; total costs and expenses
$2,472,000; and net loss $72,000. Costs and expenses consisted of the following.

Cost of sales
Selling expenses
Admin expenses
Total

Variable
$1,070,000
$356,000
$110,000
$1,536,000

Fixed
$416,000
$325,000
$195,000
$936,000

Management is considering the following independent alternatives for 2014.

1. Increase unit selling price 25% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totalling
$170,000 to total salaries of $50,000 plus a 6% commission on net sales.
3. Purchase new high-tech factory machinery that will change the proportion
between variable and fixed cost of goods sold to 40:60.
Required:
A. Compute the break-even point in dollars for 2014.
B. Compute the break-even point in dollars under each of the alternative courses
of action. Which course of action do you recommend?
C. Break-even analysis is of limited use to management because a company
cannot survive by just breaking even. Do you agree? Explain.

CASE STUDY 3
Easton Corporation makes two different boat anchorsa traditional fishing
anchor and a highend yacht anchorusing the same production machinery. The
contribution margin of the yacht anchor is three times as high as that of the
other product. The company is currently operating at full capacity and has been
doing so for nearly two years.
Bjorn Borg, the companys CEO, wants to cut back on production of the fishing
anchor so that the company can make more yacht anchors. He says that this is a
no-brainer because the contribution margin of the yacht anchor is so much
higher.
Required:
Write a short memo to Bjorn Borg describing the analysis that the company
should do before it makes this decision and any other considerations that would
affect the decision.

PART B

You had to practically apply the decision making models and tools you have
learned about throughout the subject. Reflect on your experience in completing
the various assessments in this course. What major learning on measurement
and decision making can you apply in practice as a manager in your
organisation?
The list below provides some questions you may wish to consider in your critical
reflection. These are suggestions only. You may address issues that are not on
this list.
1. Has what you have learned in this subject created an increased awareness of
the importance of decision making as a management activity? Why or why not?
2. Which model or tool most influenced you as you worked your way through the
subject? Why?
3. How critical do you believe the quality of decision making is to an
organisation? Why?
4. Which of the models and tools would you use as a manager? Why?