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Management Accounting

In such a stance, even under the buying option the organization will incur losses of $3,750. However, when sales reach the 30,000 units in year 3, profits of $5,000 will be generated because the contribution will reach $15,000 (30,000 x $0. 50). Therefore, if the financial health of the organization is able to suffer losses in the first two years, the project should be undertaken because after year 2 profits will be generated. 

If the organization decides to acquire the bindings from an outside supplier, employees may be fired, which may affect the workers morale. A decrease in job security may lead to demotivation, which in turn will manifest itself in declining productivity and efficiency. In such a stance, the $0. 50 contribution per pair may be quickly eroded leading to a negative contribution. Qualitative variables pertinent to the customers are also present.

Minnetonka Corporation may have a certain reputation of good quality products among customers. If the company engages an outside supplier in the manufacture of such goods, concerns about the quality of the product may be raised. This may lead to customers lost, who believe that the quality of the company’s products is no longer maintained. Such factor may

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also negatively affect the reputation of the firm. References: Lucey T. (2003). Management Accounting. Fifth Edition. London: Continuum.

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