Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 4 pages in length and its case teaching package is 6 pages.

Abstract

This disguised case is designed to explore issues related to the profit impact of capacity allocation in multi-product firms.

This case is a "medium difficult" exercise in comparative product profitability analysis. The "twist" in this case is that some confusion results from the fact that only contribution margin data are available for the three products. The more typical "relevant cost" problem is one in which some confusion results from the fact that only full cost data are available for products, with contribution margins obscured by fixed cost allocations. How to blend the use of contribution margins and full cost margins for management decisions is the main point of the case.

Linkages to Textbooks or Journal Articles/Fit Within a Course

We teach this case somewhere around class 4 to 8 in the required managerial accounting course. It is a good "antidote" to the common wisdom regarding relevant cost analysis. It is also a good way to reinforce the usefulness and limitation of Linear Programming.

The teaching strategy outlined in the Teaching Note typically produces a lively start and a good segue into the conventional "smart" analysis—LP and CM. It also typically provides a framework to show that full cost analysis is useful because it goes beyond the limited viewpoint in the conventional, relevant cost/optimization analysis. But, this classroom strategy is "open-ended" and requires the instructor to manage the overall discussion to make sure all the teaching issues are covered.

An alternative classroom approach is just to move through the five assigned questions one by one, letting the points and counter points emerge from the questions.

Study Questions

1. Can you estimate machine hours for each machine for each product for both 1992 and 1993? What do you infer about how the production manager assigns available machine time?
2. What is the apparent cause of the overal loss for 1993? What is the production "bottleneck"?
3. Would you have recommended a different product mix for the year just ended (1993)? What mix seems best? How do you decide?
4. Can you estimate profit for each of the three products for 1993 under full absorption costing? Is there any managerial relevance to these calculations?
5. What are your recommendations to the president of CPC? Support your recommendations with specific analysis.

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here:   For Windows 3.x   For Windows 95

©1996  South-Western College Publishing, All Rights Reserved  webmaster@swcollege.com