For this assignment, you need to review chapter 8 in the Organizational Behavior text.  In addition, you need to read chapters 8, 9, 10 and 11 in Accounting in a Nutshell.

 

Please refer to the bottom of page 287 in Accounting in a Nutshell.  Read Self Test Question 4.  I would like you to use the information from this question to respond to the following:

  • What decision making model would you use to make this decision (Page 244 in the Org. Beh. text)?
  • Would any of the techniques for making better decisions assist us in this decision (Page 255 in the Org. Beh. text)?
  • What is your final decision and why?

 

Accounting in a Nutshell Page 287 Question 4.

4             BSE Veterinary Services is a specialist laboratory carrying out tests on cattle to ascertain whether the cattle have any infection.  At present, the laboratory carries out 12,000 tests each period but, because of current difficulties with the beef herd, demand is expected to increase to 18,000 test a period, which would require an additional shift to be worked.

The current cost of carrying out a full test is:

£ Per test

Materials                                                                                                             115

Technicians’ wages                                                                                         30

Variable overhead                                                                                           12

Fixed overhead                                                                                                                50

 

Working the additional shift would:

[i]            require a shift premium of 50 % to be paid to the technicians on the additional shift.

[ii]           Enable a quantity discount of 20% to be obtained for all materials if an order was placed to cover 18,000.

[iii]          Increase fixed costs by £700,000 per period.

The current fee per test is £300

 

Required

  • Prepare a profit statement for the current 12,000 test capacity.
  • Prepare a profit statement if the additional shift was worked and 18,000 tests were carried out.
  • Comment on three other factors which should be considered before any decision is taken.

 

 

Organizational Behavior Studies