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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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