Dell

MANAGERIAL ACCOUNTING TEAM REPORT : TEAM C6 January 30, 2011 PIERRE DE ROCHE This case presents the facts of an unexpected order with some special requirements that, all together, are impossible to meet. There is one specific requirement that is impossible to fulfill. It is the delivery schedule for November and December (10 watches in November plus 20 watches in December). Those 30 watches cannot be supplied with our available movements (9 each month plus 10 movements of the old type, 28 in total), unless we received the movements in October. However, the case states that first movements arrive just in time to produce for November. Given that, we have decided to meet the maximum number of requirements (for sure, the Hong Kong store will understand), and at the same time maximize our profit. The answer for question 1 is quite straight forward. Since we only have 36 movements available and this order asks for 46 watches, it´s clear that we have to use the 2 old watches and the 8 old movements. Regarding the breakeven calculation, in terms of cash, neither movements nor labor are relevant costs for the decision of whether to manufacture or not these 10 watches. All the movements were already in stock, so there is no new spending; and the hours needed for manufacturing the 8 watches are not cash expenditure, instead those hours are absorbed within the regular hours of the workers. Thus, the breakeven is at 3 units sold (see Ex. 1). In terms of profits, the usual P&L calculation shows that we have to sell 8 units to break even. For both calculations, cash and profit, the possibility to sell the 2 first watches to relatives (we assume that we would never be willing to sell more than 2 watches to them) is only relevant if we sell 9 or 10 watches to the Hong Kong store, because then we couldn´t sell them to the relatives (and that´s why we subtract their price –at costfrom total revenues). Anyhow, this doesn´t affect to the level of breakeven. Moving to the management of...