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  • 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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