A case in relevant cost and product mix

Terrific toys: A case in relevant cost and product mix 1. Product mix for the upcoming year: (a) For the upcoming year, do you agree with Brian Jones’ rationale to not change the product mix from the last year? Why? Show your supporting calculations. (b) Suggest changes, if any, that RPCES should make to the product mix for the upcoming year, and compute the effect of the suggested change on the net income of RPCES. For answering this question, ignore the possibility of off-shoring and the special order. 2. Analyses of special order: Taking into account the financial and non-financial considerations, explain whether the special order should have been accepted by (a) Brian Jones, the manager of the RPCES division, and (b) by the headquarters of Terrific Toys. Show supporting calculations and explain your rationale. Terrific Toys1 A case in relevant costs, product mix, and off-shoring analyses Andy Rosenthal was getting anxious. Just when he thought that he was almost done with his summer internship at Terrific Toys (hereafter, TT, or the Company), and started entertaining the prospect of getting an offer for a full-time position upon graduation, Mr. Anderson, TT’s controller, called Andy to his office for a brief meeting during which the following conversation ensued: Mr. Anderson: Thanks, Andy, for the great job you’ve done during the last two months on the forecasted financial statement preparation. We sent the forecasts to the bank and I understand that our loan proposal will be approved soon. Now comes the final part of your internship. In completing this assignment, you will interact with the divisional managers of the Company. As you know, they too will have a voice in deciding whether TT will extend you a job offer upon your graduation. Andy (suppressing his disappointment at the prospect of a disappearing vacation before the start of the school year): That’s great. My professors have always told me that accounting involves more than crunching numbers. This will provide a good opportunity to me for professional interaction and growth. What would you like me to do? Mr. Anderson (smiling): Help me put some financial sense in the heads of our divisional managers! Brian Jones who manages our Racer Pedal Cars and Electric Scooters division, for example. Brilliant engineer, I agree, but believe me, no financial sense. I’ve toiled tirelessly for more than a decade to develop a darn good system for cost accounting and performance evaluation at Terrific Toys but some of these divisional managers aren’t using it properly. And I have been getting an earful from our CEO, Dan Smith. Andy: What do you mean? I don’t quite understand. Mr. Anderson: You see, while many of our managers are doing a good job of manufacturing and marketing their products, they don’t get the financial part. Andy: I noticed while compiling the financial forecasts that Brian’s division sold electric scooters at a loss last year. Mr. Anderson: That’s what I mean. Our division managers can use some accounting and finance acumen to boost our bottom line. As you heard during the CEO’s address to the