Question

Assume the decisions to make pool shades and trellises are considered to be a long-term but small-scale decision and that Chandler would make these products one at a time when time is available, so as not to delay any of the custom orders. While still a tactical decision, excess capacity cannot be guaranteed beyond the current year. As such, Chandler feels a resource usage approach would be a more appropriate approach to evaluating the decision to make the products.

a. Compute the ABC rates for new resources.
b. Compute the incremental profit of making and selling the full demand of pool shades.
c. Compute the average cost of making one pool shade.
d. Compute the incremental profit of making and selling the full demand of trellises.
e. Compute the average cost of making one trellis.
f. Given the assumptions aforementioned (such as long-term and small-scale), would Chandler’s management choose to make either or both of the products? Explain your answer.

Answer 1

The response involves a discussion of business decision-making, focusing on cost analysis and long-term tactical decisions, but lacks sufficient data to compute specific financial metrics. Chandler's management would need to evaluate several cost factors and market structure before making a decision to produce pool shades and trellises.

Step-by-step explanation:

The question involves applying business concepts to determine whether producing pool shades and trellises would be a profitable decision for Chandler's business. It involves a combination of cost accounting and managerial decision-making.

Unfortunately, given the data provided, it is not possible to compute the ABC (Activity-Based Costing) rates for new resources or the incremental profit for making and selling the full demand of pool shades and trellises, nor is it possible to compute the average cost of making one pool shade or trellis.

In terms of strategic decision-making, Chandler's management would need to consider the long-term benefits and costs associated with producing these items on a small scale. However, without guaranteeing excess capacity, the management would likely evaluate whether the production of these items fits within their current market structure and if it would potentially generate incremental profit. They would also take into account opportunity cost, fixed and variable costs, average total cost, average variable cost, and marginal cost to make an informed decision.