Solution for relevant cost
Part A: Fixed & Variable Cost
B: CVP Analysis
|
Output |
120000 |
Kgs | |
|
Total |
Per kilograms | ||
|
Sales |
$ 5,40,000 |
4.5 | |
|
Variable Expenses |
$ 3,60,000 |
3 | |
|
Contribution Margin |
$ 1,80,000 |
1.50 | |
|
Fixed Expenses |
$ 1,20,000 | ||
|
Net Operating Profits |
$ 60,000 | ||
|
1. Break Even Points (KGs.) |
80000 | ||
|
2. Break Even Points in Dollars |
$ 3,60,000 | ||
|
3. Target sales to earn target profits of |
$90,000 |
180000 | |
|
4. Margin of Safety ($) |
$ 1,80,000 | ||
ii).
|
1. Fixed Lease Charges |
$ 20,000 | ||
|
Variable Lease Charges |
$ 12,000 | ||
|
hence at the level of production, the company should | |||
|
Pay lease rent of $ 0.10 rather than going for a fixed plan. | |||
|
2. Break Even Points(Kgs) |
38709.68 | ||
|
3. BEP ($) |
$ 1,74,194 | ||
|
4. Target sales to earn target profits |
150000 | ||
C : Relevant Cost/ Special order
|
Variable Manufacturing Overhead |
$ 2,25,000 | ||
|
Fixed Manufacturing Overhead |
$ 6,30,000 | ||
|
Direct Labour hours |
45000 | ||
|
Overhead rate per hour |
$ 19 | ||
|
VO / hour |
$ 5 | ||
|
FO per hour |
$ 14 | ||
|
Variable Manufacturing cost per units | |||
|
Direct Material cost per units |
$ 21 | ||
|
Direct labor cost per units |
$ 41 | ||
|
VO per units |
$ 5 | ||
|
Total Variable Cost per units |
$ 67 | ||
|
Suppliers' price is $ 78 per unit hence it is advisable to buy. | |||
|
Fixed cost is irrelevant | |||
Part d: Relevant cost make or buy
|
Total Cost per units of Manufacturing of part U 67 | |||
|
Per Units | |||
|
Direct Material Cost |
$ 8.70 | ||
|
Direct Labour Cost |
$ 2.70 | ||
|
Variable Overheads |
$ 3.30 | ||
|
Supervisor salary |
$ 1.90 | ||
|
Dep for sp Equipment |
$ 1.80 | ||
|
Allocated General Overheads |
$ 5.50 | ||
|
Total Cost per units |
$ 23.90 | ||
|
Relevant cost if buy from suppliers | |||
|
Suppliers price |
21.4 | ||
|
Allocated General Overheads |
4.64 | ||
|
Relevant total cost |
26.04 | ||
|
As the relevant supplier cost is more it is better to manufacture it. | |||
Part E :
|
Particulars |
A |
B |
|
Selling price without further processing |
$ 21 |
$ 44 |
|
Total cost of Manufacturing(36+15) = 51 |
$ 16 |
$ 35 |
|
Profits if sold without processing |
$ 5 |
$ 9 |
|
Profits when it is further processed | ||
|
Selling Price |
$ 32 |
$ 64 |
|
less : further processing cost |
$ 14 |
$ 28 |
|
Net Realisable Value |
$ 18 |
$ 36 |
|
Total cost of Manufacturing(36+15) = 51 |
$ 17 |
$ 34 |
|
Profits when it is further processed |
$ 1 |
$ 2 |
|
It is better to sell as it is because it is making more profits | ||
|
compare to further processed | ||
Part F: Relevant cost / dropping a product
|
Statement of Net Operating Incomes |
If Continued |
If discontinued |
|
Sales |
150000 |
0 |
|
Less: Operating Cost | ||
|
Variable Expenses |
72000 |
0 |
|
Contributions |
78000 |
0 |
|
Fixed Manufacturing Exp |
50000 |
20000 |
|
Fixed Selling & Distribution Exp |
33000 |
20000 |
|
Total Cost |
83000 |
40000 |
|
Net Operating Profts (Loss) |
-5000 |
-40000 |
|
b. if the company discontinued than a loss will increase by 35000 | ||
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