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Managerial Analysis BYP 9-2 Prasad & Green Inc. manufactures ergonomic devices for computer users.

Managerial Analysis
BYP 9-2 Prasad & Green Inc. manufactures ergonomic devices for computer users.
Some of their more popular products include glare screens (for computer monitors), keyboard
stands with wrist rests, and carousels that allow easy access to magnetic disks. Over
the past 5 years, they experienced rapid growth, with sales of all products increasing 20%
to 50% each year.
Last year, some of the primary manufacturers of computers began introducing new
products with some of the ergonomic designs, such as glare screens and wrist rests, already
built in. As a result, sales of Prasad & Green's accessory devices have declined somewhat.
The company believes that the disk carousels will probably continue to show growth, but
that the other products will probably continue to decline. When the next year's budget was
prepared, increases were built in to research and development so that replacement products
could be developed or the company could expand into some other product line. Some
product lines being considered are general-purpose ergonomic devices including back supports,
foot rests, and sloped writing pads.
The most recent results have shown that sales decreased more than was expected for
the glare screens. As a result, the company may have a shortage of funds. Top management
has therefore asked that all expenses be reduced 10% to compensate for these reduced
sales. Summary budget information is as follows.
Budgetary Planning
Direct materials $240,000
Direct labor 110,000
Insurance 50,000
Depreciation 90,000
Machine repairs 30,000
Sales salaries 50,000
Office salaries 80,000
Factory salaries (indirect labor) 50,000
Total $700,000
Instructions
Using the information above, answer the following questions.
(a) What are the implications of reducing each of the costs? For example, if the company
reduces direct materials costs, it may have to do so by purchasing lower-quality
materials. This may affect sales in the long run.
(b) Based on your analysis in (a), what do you think is the best way to obtain the $70,000
in cost savings requested? Be specific. Are there any costs that cannot or should not
be reduced? Why?

Managerial Analysis
BYP 9-2 Prasad & Green Inc. manufactures ergonomic devices for computer
users.
Some of their more popular products include glare screens (for computer
monitors), keyboard
stands with wrist rests, and carousels that allow easy access to
magnetic disks. Over
the past 5 years, they experienced rapid growth, with sales of all
products increasing 20%
to 50% each year.
Last year, some of the primary manufacturers of computers began
introducing new
products with some of the ergonomic designs, such as glare screens and
wrist rests, already
built in. As a result, sales of Prasad & Green's accessory devices have
declined somewhat.
The company believes that the disk carousels will probably continue to
show growth, but
that the other products will probably continue to decline. When the next
year's budget was
prepared, increases were built in to research and development so that
replacement products
could be developed or the company could expand into some other product
line. Some
product lines being considered are general-purpose ergonomic devices
including back supports,
foot rests, and sloped writing pads.
The most recent results have shown that sales decreased more than was
expected for
the glare screens. As a result, the company may have a shortage of
funds. Top management
has therefore asked that all expenses be reduced 10% to compensate for
these reduced
sales. Summary budget information is as follows.
Budgetary Planning
Direct materials $240,000
Direct labor 110,000
Insurance 50,000
Depreciation 90,000
Machine repairs 30,000
Sales salaries 50,000
Office salaries 80,000
Factory salaries (indirect labor) 50,000
Total $700,000
Instructions
Using the information above, answer the following questions.
(a) What are the implications of reducing each of the costs? For
example, if the company
reduces direct materials costs, it may have to do so by purchasing
lower-quality
materials. This may affect sales in the long run.
(b) Based on your analysis in (a), what do you think is the best way to
obtain the $70,000
in cost savings requested? Be specific. Are there any costs that cannot
or should not
be reduced? Why?

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