TOPIC: DECISION EFFECTIVENESS

Decision Effectiveness

Decision Effectiveness

Sales Schedule for the Month

Offer Number

Sales Price/Unit

Units Sold

Sales Value

 

$

$

$

Sam Smoothtalk

 

 

 

Offer # 01

310 200 62,000

Offer # 02

305 150 45,750

Harry Hustler

 

 

 

Offer # 01

305 50 15,250

Offer # 02

300 100 30,000

Offer # 03

330 75 24,750

Gary Giftofgab

 

 

 

Offer # 01

305 250 76,250

Offer # 02

325 100 32,500

 

 

 

 

Total

311 925 286,500

 

 

 

Income Statement for the Month

 

 

 

 

 

 

 

 

 

 

Monthly Annually $ $ $ $

 

Sales

 

286,500 3,438,000

Less:

Costs

 

 

 

 

 

Direct Materials

134,125 1,609,500

 

 

Direct Labor

55,500 666,000

 

 

Factory Over Head

 

 

 

 

 

Fixed

41,625 450,000

 

 

Variable

37,000 444,000

 

 

Total Manufacturing Costs

 

268,250 3,169,500

 

Net Contribution Margin

 

18,250 268,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Manufacturing Costs Ratio

 

6.80%

 

8.47%

 

 

 

 

 

 

Mr. Paul Pecos' Decision was not a good decision as he does not consider the fact that the fixed cost will remain constant up to the production of 20,000 units and he could have benefit of this if he goes for mass sales and mass production. So, it is concluded that his decision rule was not a perfect rule in terms of profitability.

Sales Schedule for the Month

Offer Number

Sales Price/Unit

Units Sold

Sales Value

 

$

$

$

Sam Smoothtalk

 

 

 

Offer # 01

310 200 62,000

Offer # 02

305 150 45,750

Harry Hustler

 

 

 

Offer # 01

305 50 15,250

Offer # 02

300 100 30,000

Offer # 03

330 75 24,750

Gary Giftofgab

 

 

 

Offer # 01

305 250 76,250

Offer # 02

325 100 32,500

Ms. Glenda Goodperson

 

 

 

Offer # 01

290

700

203,000

Total

 

1,625 489,500

 

 

 

Income Statement for the Month

 

 

 

 

 

 

 

 

 

 

Monthly Annually $ $ $ $

 

Sales

 

489,500 5,874,000

Less:

Costs

 

 

 

 

 

Direct Materials

235,625 2,827,500

 

 

Direct Labor

97,500 1,170,000

 

 

Factory Over Head

 

 

 

 

 

Fixed

73,125 450,000

 

 

Variable

65,000 780,000

 

 

Total Manufacturing Costs

 

471,250 5,227,500

 

Net Contribution Margin

 

18,250 646,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Manufacturing Costs Ratio

 

3.87%

 

12.37%

 

 

 

 

 

 

The decision of Mr. Paul Pecos in reaction of Ms. Goodperson's sales was worst; he even didn't realize that her sales improve the profitability of the company (as shown in the above table). The impact of sales of 700 units even at the low price is positive because the fixed costs were already been covered by the previous sales and every unit after that will give more profit as compared to the previous units. Thus, the sale of Ms. Goodperson's was a good step and the decision of Mr. Paul Pecos to fire Ms. Goodperson's was a bad decision.

Recommendations

Based on the above mentioned computations and calculations it is recommended that Mr. Paul Pecos should revise his decision rule and look for mass sales and production up to 20,000 units as ...