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Introduction MBA515_7.jpg Majestic Ocean Kayaking, of Ucluelet, British Columbia, is owned and operated by Tracy Morben-Eeftink. The company offers a...
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(Initial Posting) Business is booming for the Majestic Ocean Kayaking company as more American are deciding to vacation at home instead of abroad. This means that more guides are needed to handle the increased volume. As a member of the senior leadership team for Majestic Ocean Kayaking, you, along with other management officials, are concerned that the current step-variable approach used to pay the guides might not be the most cost effective, which was voiced at a recent budget meeting. The CEO has tasked the senior management team to prepare a position paper that analyzes the current method of paying the guides to other methods just as fixed cost or strictly variable. To complete this analysis, you will need to collect relevant data, describe the problem, solutions, and overall impact on the bottom line.  You will need to include some discussion on the various approaches that can be used and the pros and cons of each one.


IntroducTon MBA515_7.jpg MajesTc Ocean Kayaking, of Ucluelet, BriTsh Columbia, is owned and operated by ±racy Morben-EeFink. ±he company o²ers a number of guided kayaking excursions ranging from three-hour tours of the Ucluelet harbor to six-day kayaking and camping trips in Clayoquot Sound. ±he company is currently using a step-variable cost approach for paying guides but wants to consider the impact of other approaches. It is oFen necessary to predict how a certain cost will behave in response to a change in acTvity (Garrison, 2015). ³or planning purposes, a manager must be able to anTcipate which of these will happen; and if a cost can be expected to change, the manager must be able to esTmate how much it will change. ±o help make such disTncTons, costs are oFen categorized as variable, ´xed, or mixed. ±he relaTve proporTon of each type of cost in an organizaTon is known as its cost structure. ³or example, an organizaTon might have many ´xed costs but few variable or mixed costs. AlternaTvely, it might have many variable costs but few ´xed or mixed costs. According to Garrison (2014), management accountants ordinarily assume that costs are strictly linear; that is, the relaTon between cost on the one hand and acTvity on the other can be represented by a straight line. Economists point out that many costs are actually curvilinear; that is, the relaTon between cost and acTvity is a curve. Nevertheless, even if a cost is not strictly linear, it can be approximated within a narrow band of acTvity known as the relevant range by a straight line. ±he relevant range is the range of acTvity within which the assumpTon that cost behavior is strictly linear is reasonably valid. Outside of the relevant range, a ´xed cost may no longer be strictly ´xed or a variable cost may not be strictly variable. Managers should always keep in mind that assumpTons made about cost behavior may be invalid if acTvity falls outside of the relevant range. It is important to note that the concept of the relevant range is important in understanding ´xed costs. Garrison (2014) also menTons that this step- oriented cost behavior paµern can also be used to describe other costs, such as some labor costs. ³or example, in healthcare, when a nursing unit has a low paTent census, management doesn’t automaTcally layo² nurses when the number of admiµed paTents is below the low end of the range. Conversely, management doesn’t look to hire addiTonal nurses with the paTent census exceed the high end of the range. So, if the census remains within a relevant range, personnel levels are maintaining at a constant level; however, if the low census falls outside the range, management will need to consider their opTons: 1) layo²s or redistribute labor to other areas of the organizaTon when the volume is below the low end of the range OR hire addiTonal labor when the volume exceeds the high end of the range. ±here are organizaTons that use cost behavior as a model for sta² compensaTon, which is being highlighted in this mini-case. Understanding costs and their behaviors is a fundamental building block for managerial accounTng and ´nance.
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Source: Garrison, R., Noreen, E., & Brewer, P. (2014). Managerial accountng (15Th ed.). Columbus, OH: McGraw-Hill Educaton. ULO 4. Apply various cost behavior in management decision making (CLO 2) Directons Inital Postng (Inital Postng) Business is booming for The Majestc Ocean Kayaking company as more American are deciding To vacaton aT home insTead of abroad. ±his means ThaT more guides are needed To handle The increased volume. As a member of The senior leadership Team for Majestc Ocean Kayaking, you, along wiTh oTher managemenT oFcials, are concerned ThaT The currenT sTep-variable approach used To pay The guides mighT noT be The mosT cosT e²ectve, which was voiced aT a recenT budgeT meetng. ±he CEO has Tasked The senior managemenT Team To prepare a positon paper ThaT analyzes The currenT meThod of paying The guides To oTher meThods jusT as ³xed cosT or sTricTly variable. ±o compleTe This analysis, you will need To collecT relevanT daTa, describe The problem, solutons, and overall impacT on The bo´om line. You will need To include some discussion on The various approaches ThaT can be used and The pros and cons of each one.
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