LEARNING POINTS (CMA)

REGISTRATION NUMBER: 2016-21-E-996

1. HANSON MANUFACTURING:
a. In assessing profitability, the method of cost allocation is very
important. When the wrong cost allocation system is used, a
profitable product may appear unprofitable
b. Relevant costs are very important in making decisions about
whether to continue or discontinue a product because the
advantage of absorption of fixed costs might make a product
which is reported as unprofitable to actually be profitable to the
company
2. PRESTIGE TELEPHONE COMPANY:
a. Reported costs do not often show the entire picture of the
profitability of a product or division. Sometimes, in deciding
whether to eliminate a product or division, you need to consider
the relevant costs in the decision, not merely all reported costs
b. Contribution margin is a very important metric in analyzing
profitability and making decisions about whether or not to
continue or discontinue a product or division
3. SHERIDAN CARPETS:
a. Its important to think strategically. Ones pricing decision may
also affect the pricing of competitors
b. Factors to be considered in pricing decisions:
i. Profitability
ii. Operating cash flow to fund replacements, upgrades and
expenditure
iii. Competitions reaction
iv. Market share (price has no impact on volume, provided
the price is commensurate with industry)
v. Impact on the sales of other products
vi. Brand value
c. Dont use marginal costing all the time. In some situations, you
need to take strategic considerations and use full cost instead
d. Marginal costing does not make a company rich. Contribution is
not equal to profit
4. HURON AUTOMOTIVE:
a. The proposal for a new cost system should not be adopted
solely on the justification of improved accuracy; the improved
accuracy is worthless if it doesnt lead to better decision-making
(as reflected in higher income).
b. If the proposal were costly, the chief benefit, (diagnostic
information), could be gained by an annual ad hoc five-costcenter product costing, without changing the routine costing
system.
5. INDUSTRIAL GRINDERS:
a. Short-run considerations in decision-making are:
i. Current inventory of steel (raw materials and finished
goods)

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ii. Pricing policy (impacted by the customers values and

product cost)
b. Long-run considerations in decision-making are:
i. Moving from steel to plastics (how, where and when)
ii. Ethical issues of fairness to customers and customer care
SYMALIT AG:
a. Key issues/decisions in the case are:
i. Review of the cost accounting system
ii. Elimination of the middlemen in the construction industry
iii. Profitability of production
iv. Optimization of capacity utilization. Labour laws outside
Nigeria are more humane and considerate. Hence,
layoffs are a huge risk and last resort for companies
v. Use of leveled production or Just-in-Time. Leveled
production is the rate of production that remains constant
irrespective of the fluctuation in demand. Its objective is
to maximize plant capacity utilization and maintenance of
the workforce level
SIGNATRON CORPORATION:
a. Methods of joint cost allocation include:
i. Average costing (Physical measure approach)
ii. Relative sales value approach
b. These methods are used to determine:
i. Inventory valuation
ii. Cost base for pricing decisions
c. By-products should not be allocated with any portion of the joint
cost that are incurred before the split-off point
d. The relative sales value method is preferable because it
provides more realistic inventory valuation unlike the physical
measurement which distorts inventory valuation
MUELLER:
a. When products are sold as a bundle, sometimes the profit from
one product can off-set the loss from another
MASSACHUSETS EYE AND EAR INFIRMARY:
a. The per-diem system charged more for longer days
b. The split-cost system charged more for shorter days
c. Hence the new cost system reflects more fairly the
CCUs/intensity of care for each service