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Learning Guide Unit 4

Site: University of the People

BUS 5110 Managerial Accounting -
Course:
AY2021-T4
Book: Learning Guide Unit 4
Printed by: Haitham Elhassan
Date: Saturday, 5 June 2021, 1:17 PM

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Description

Learning Guide Unit 4

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Learning Guide Unit 4 https://my.uopeople.edu/mod/book/tool/print/index.php?id=241122

Table of contents

Overview

Introduction

Reading Assignment

Discussion Assignment

Written Assignment

Portfolio Activity

Group Activity

Checklist

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Overview

Unit 4: Di�erential Analysis

Topics:

Relevant Revenues and Costs

Using Di�erential Analysis to Make Decisions
Qualitative Factors

Learning Objectives:

By the end of this Unit, you will be able to:

1. Explain di�erential analysis and its purpose.

2. Justify which factors to include and exclude in di�erent decision situations.
3. Recommend a course of action given a set of �nancial information.
4. Propose a situation where qualitative factors would outweigh quantitative ones.

Tasks:

Peer-assess Unit #3 Written Assignment

Read through the Learning Guide and the Reading Assignment
Complete the Discussion Assignment by posting in the Discussion Forum
Respond to and rate three of your fellow classmates’ posts in the Discussion Forum
Complete and submit the Case Study/ Written Assignment
Complete the Portfolio Assignment
Begin work on the Group Project

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Introduction

In the last Unit, we used cost information to analyze product performance. Now we are
introduced to analyses that lead to more speci�c management decision-making – Di�erential
analysis. Often, business decisions involve choosing between alternative courses of action, and
companies tend to want to �nd the alternative that o�ers the highest revenue or the most
signi�cant reduction in costs. Non-routine decisions use di�erential analysis. These include make-
or-buy choices, whether to retain or drop a product line, or even if a customer should be retained
or dropped. In using di�erential analysis, common revenues and costs are factored out of the
assessment, thereby focusing on revenue and cost information that is speci�c to a given product,
customer, or another point to be analyzed.

It is important to note that sometimes analyses may be done after a company has already started
down a particular path and spent money doing so. These costs, referred to as sunk costs, must be
ignored in di�erential analysis. In addition to gathering relevant data to support a decision,
management must also consider alternative ways to utilize funds. These other options are
opportunity costs.

All of the analyses covered thus far are quantitative. However, qualitative factors also should be
considered, such as convenience for the customer, company reputation, and environmental
considerations. Sometimes these factors are more important than strictly quantitative measures.
However, in all situations, managers can make better decisions if they identify all of the
quantitative and qualitative consequences of alternative choices.

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Reading Assignment

1.  Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://2012books.lardbucket.org
/books/accounting-for-managers/index.html

Chapter 7 – How Are Relevant Revenues and Costs Used to Make Decisions?
This text explains how to use di�erential analysis and how to identify relevant costs, with
illustrations using applied examples.

Optional Video
1.  Lynch, C. (2014, June 23). Di�erential Analysis - Concepts [Video]. YouTube.

Differential Analysis - Concepts

(6:27)

This video illustrates and explains di�erential analysis through examples.

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Discussion Assignment

In the discussion forum, you are expected to participate often and engage in deep levels of
discourse.  Please post your initial response by Sunday evening and continue to participate
throughout the unit. You are required to post an initial response to the question/issue presented
in the Forum and then respond to at least 3 of your classmates’ initial posts.  You should also
respond to anyone who has responded to you. 

Your Discussion should be a minimum of 250 words in length and not more than 450 words.
Please include a word count. Following the APA standard, use references and in-text citations for
the textbook and any other sources. 

Continuing with the company selected in Unit 2, think about the types of �nancial data that would
be included and excluded in di�erential analysis. Propose which speci�c revenues and costs
should be considered in an evaluation to drop or keep a:

Customer
Product line

In addition, explain sunk and opportunity costs as they relate to your selected company. Should
these costs be considered in di�erential analysis? Why or why not?

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Written Assignment

Submit a paper which is 2-3 pages in length (no more than 3-pages), exclusive of the reference
page. Paper should be double spaced in Times New Roman (or its equivalent) font which is no
greater than 12 points in size. The paper should cite at least two sources in APA format.  One
source can be your textbook.

Please describe the circumstances of the following case study and recommend a course of action.
Explain your approach to the problem, perform relevant calculations and analysis, and formulate
a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine
components based on the annual production of 50,000 units.

Description Cost per Month

Direct Materials    $75,000

Direct Labor $100,000

Total $175,000

In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is
applied at 150% of direct labor cost per unit. The vacuums sell for $150 each. A third party has
o�ered to make the engines for $60 per unit. 75% of �xed factory overhead, which represents
executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the
company make or buy the engines? Ensure all per unit amounts ar provided.

Superior papers will:

Perform all calculations correctly.

Articulate the approach to solving the problem, including which �nancial information is
relevant and not relevant.
Correctly conclude on whether the company should make or buy the engines.

Propose other factors that should be considered when making this decision and elaborate on
whether or not those factors do or do not support the decision.

Be sure to use APA formatting in your paper.  Purdue University’s Online Writing LAB (OWL) is a
free website that provides excellent information and resources for understanding and using the
APA format and style. The OWL website can be accessed here: http://owl.english.purdue.edu
/owl/resource/560/01/

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This assignment will be assessed using the BUS 5110 Unit 4 Written Assignment rubric

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Portfolio Activity

Qualitative factors are non-�nancial in nature but are important for management to consider
when making decisions. Re�ecting on a company for which you have worked (or are otherwise
familiar), describe three qualitative factors that would be important for management decision-
making. Then, assess each of them in order of importance. Given your assessment, justify a
situation where the qualitative factors would outweigh the quantitative results. Be speci�c.
As portfolio activities are to be self-re�ective, please make sure to connect the portfolio
assignment to:

Your personal experiences. Re�ect on how this assignment topic is applicable to and will
bene�t you.
Course readings and any external readings.
Discussion forum posts or other course objectives.

The Portfolio Activity entry should be a minimum of 500 words and not more than 750 words. Use
APA citations and references if you use ideas from the readings or other sources.

This assignment will be assessed using the Portfolio rubric.

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Group Activity

For this activity, you have been hired as a team of consultants on a multi-year basis for a global
washer and dryer manufacturer. They currently o�er two core washer and dryer sets: a high-end
model and an economic model. You are tasked to complete several calculations and present your
�ndings to the company stakeholders. You may use any presentation software (Google Slides,
Prezi, PowerPoint, etc.) and your completed presentation should consist of 8 – 12 slides. A copy of
the �nal presentation will be submitted by each member of the group in Unit 7.

1.  For your �rst assignment, management has provided the following revenue and cost
information:

High-End Set Economical Set

Sales price     $3,500  per unit     $1,000  per unit  

Labor    $875  per unit    $250  per unit

Materials    $1400  per unit    $300  per unit

Direct �xed costs     $25,000  per month    $16,500  per month

Allocated �xed costs     $85,000  per month    $85,000  per month

They want a better understanding of their business to make budgeting and sales goals decisions
and have asked you to determine their:

1. Contribution Margins for each product line

2. Break-even quantities for each product line
3. Break-even quantities to earn $500,000 per year margin on the high-end line (at the
current sales price)
4. Break-even quantities to earn $300,000 per year margin on the economical line (at the
current sales price)

They expect the product lines to fully absorb the costs allocated to them. They have also asked
that you show each step in your calculations so that they can understand your analysis. (Note: you
will be graded on your intermediary values.)

Once you have determined these amounts, they have asked that you:

present the information

describe how you performed your calculations
and explain what the results mean

2. Later, the company is considering the purchase of machinery and equipment to set up a line to
produce a combination washer-dryer. They have given you the following information to analyze
the project on a 5-year timeline:

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Initial cash outlay is $150,000, no residual value.

Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per
unit in materials.
Direct �xed costs are estimated to run $20,750 per month.
Cost of capital is 8%, and the required rate of return is 10%.
They will incur all operational costs in Year 1, though sales are expected to be 55% of break-
even.
Break-even (considering only direct �xed costs) is expected to occur in Year 2.
Variable costs will increase 2% each year, starting in Year 3. 
Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.

They have asked you to calculate:

The product’s contribution margin
Break-even quantity
NPV
IRR

Once you have determined these amounts, they have asked that you present the information,
describe how you performed your calculations, and explain what the results mean.

After you have completed the calculations and presented your work, management makes the
investment. 

Explain how the project analyses do or do not support this decision. 

In either case, what are the factors that should have been considered in management’s
decision?

3.  After the combo washer-dryer has been in production for a few years, you are asked to
perform another analysis. You must evaluate the performance of all three product lines as
management is concerned with the viability of the washer-dryer combination product. They
provide you with the latest annual information by product:

 High-End Set   Economical Set   W/D Combo  Total

 Sales   $4,700,000     $4,060,000    $880,000     $9,640,000

 Labor   $(1,250,000)   $(1,015,000)   $(235,000)   $(2,500,000)

 Materials   $(1,885,000)   $(1,220,000)   $(315,000)   $(3,420,000)

 Direct �xed costs    $(325,000)   $(220,000)   $(250,000)   $(795,000)

 Allocated �xed costs    $(650,000)   $(650,000)   $(650,000)   $(1,950,000)

 Net Income    $590,000   $955,000   $(570,000)   $975,000

You are asked to perform an analysis to determine whether to drop or keep the washer-dryer
combination product and present your �ndings, including the steps taken to make your
determination. You are also asked to evaluate if the costing methodology is appropriate and, if
not, recommend alternative methods.

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Please describe the circumstances of the case study and make the required recommendations.
Explain your approaches to the problems, perform relevant calculations and analyses, and justify
your recommendations. Evaluate the results and explain what each calculated value means.
Ensure your work and conclusions are thoroughly supported.

Superior presentations will:

Describe the circumstances.
Perform all calculations correctly.
Articulate how the calculations were performed.
Evaluate the computations and explain their meanings.
Make recommendations, supported by well-thought-out rationale and considering various
factors that could impact the recommendations.

You have been provided with two areas in the course to discuss and collaborate:  A group
discussion forum and a wiki collaboration area.  Group members and instructors have access to
these areas and can see the discussions and the work you do within these areas. This
communication is not graded. You are also free to use tools outside of the course, such as Google
Docs, Yammer, etc.  if your group chooses to do so.

Your presentation is due in Unit 7. Be sure to use APA formatting in your presentation and
ensure it looks professional.  As a reminder, the Purdue OWL website can be accessed
here: http://owl.english.purdue.edu/owl/resource/560/01/

Your presentation will be assessed using the Group Activity Rubric.

Download a PDF version of your Group Activity Description.

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Checklist

Peer assess Unit 3 Written Assignment

Read the Learning Guide and Reading Assignments
Participate in the Discussion Assignment (post, comment, and rate in the Discussion Forum)
Complete and submit the Written Assignment
Continue to participate in the �rst Group Activity
Respond to the Portfolio Activity

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