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Cost Accounting

The document discusses various costing and decision making scenarios. It examines whether companies should make or buy products, accept or reject offers, continue or shut down operations, and retain or replace equipment based on relevant differential and contribution margin analyses.

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JAN FEVRIER OLETE
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23 views4 pages

Cost Accounting

The document discusses various costing and decision making scenarios. It examines whether companies should make or buy products, accept or reject offers, continue or shut down operations, and retain or replace equipment based on relevant differential and contribution margin analyses.

Uploaded by

JAN FEVRIER OLETE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Determine the relevant/differential costs.

Cost to Make Cost to Buy Differential Cost


Variable cost:
Direct Materials 6
Direct Labor 4
Variable Overhead 4
Total 14 20 6
Fixed Costs:
Salaries 4 3 1
Relevant cost per unit 18 23 5

2. Should the company make or buy meals?


- The company should make meals since the cost is lower in making than
buying.

3. Determine the relevant/differential costs.

Accept Reject
Revenue:
Sales Revenue 310,000 310,000
Offer 180,000
Total 490,000 310,000
Costs:
Variable and Fixed 220,000 220,000
Variable (Offer) 120,000
Total 340,000 220,000
Net Income 150,000 90,000
Differential Cost P60,000

4. Should the offer be accepted?


Yes, the offer should be accepted since the net income with the offer is higher
by 60,000.

5. Determine the direct contribution margin.


SALES 400,000
Variable Costs:
Direct Materials 140,000
Direct Labor 80,000
Manufacturing Overhead 50,000 (270,000)
Contribution Margin 130,000
Fixed Costs:
Depreciation on equipment 20,000
Supervisor’s salaries 40,000
Airport fees 10,000 (70,000)
Direct Contribution Margin P60,000
6. Should the club be continued or eliminated?
- The club should continue its operation.
7. Shutdown costs
Fixed cost per month 150,000
Fixed cost avoided (70,000)
New Fixed cost 80,000
Multiplied by number of months 4
Total 320,000
Additional cost 25,000
Restarting cost 50,000
Shutdown cost P395,000

8. Shutdown savings
Fixed cost avoided 70,000
Multiplied by number of months 4
Shutdown Savings P280,000

9. Shutdown point
Shutdown savings/Contribution margin
=280,000/130
Shutdown point = P215.385

10. Net advantage of continued/shut down operations


Result of Continued Operations
Sales (4,000x350) 1,400,000
Variable cost (4,000x270) (1,080,000)
Fixed cost (600,000)
Net loss (280,000)
Shutdown cost 395,000
Net advantage of continued operations P115,000

11. Should the club operations shut down or continue?


- The company should continue to operate since they would incur additional
loss of 115,000 if they shut down their operations. The demand is also
greater than the shutdown point.

12. Determine the relevant/differential cost.

Old New Differential


cost
Cost 200,000 30,000
Useful life 4 1
Depreciation expense 50,000 30,000
Operating cost 160,000 90,000
Disposal value (10,000)
Total 210,000 110,000 100,000
13. Should the old loader be retained or replaced?
- The old loader should be replaced since the total cost for the new loader is
lower than the old.

I. Multiple choice
1. C
2. B
3. D
4. D
5. B

II. Problem Solving


a. Contribution margin ratio = (Selling price per unit - Variable costs per
unit) / Selling price per unit
Contribution margin ratio = (12 - 9) / 12
Contribution margin ratio = 0.25 or 25%

b. Breakeven point in number of baseballs = Fixed costs / Contribution


margin
Fixed costs = 1,200,000 + 300,000 = 1,500,000
Contribution margin = Selling price per unit - Variable costs per unit = 12 -
9=3

Breakeven point in number of baseballs = 1,500,000 / 3


Breakeven point in number of baseballs = 500,000 units

c. Breakeven point in pesos = Fixed costs / Contribution margin ratio


Fixed costs = 1,200,000 + 300,000 = 1,500,000
Contribution margin ratio = 25%

Breakeven point in pesos = 1,500,000 / 25%


Breakeven point in pesos = P6,000,000

d. Margin of safety in number of baseballs = Current sales in units -


Breakeven point in number of baseballs

Current sales in units = 980,392 units


Breakeven point in number of baseballs = 500,000 units

Margin of safety in number of baseballs = 980,392 - 500,000


Margin of safety in number of baseballs = 480,392 units

e. Margin of safety in pesos = Current sales - Breakeven point in pesos


Current sales = 980,392 units * P12 = P11,764,704
Breakeven point in pesos = P6,000,000

Margin of safety in pesos = 11,764,704 - 6,000,000


Margin of safety in pesos = P5,764,704

f. Desire sales in number of baseballs = (Desired profit + Fixed costs) /


Contribution margin
Desired profit = P420,000
Fixed costs = 1,200,000 + 300,000 = 1,500,000
Contribution margin = Selling price per unit - Variable costs per unit = 12 -
9=3

Desire sales in number of baseballs = (420,000 + 1,500,000) / 3


Desire sales in number of baseballs = 1,920,000 / 3
Desire sales in number of baseballs = 640,000 units

g. Desire sales in pesos = (Desired profit + Fixed costs) / Contribution


margin ratio
Desired profit = P420,000
Fixed costs = 1,200,000 + 300,000 = 1,500,000
Contribution margin ratio = 25%

Desire sales in pesos = (420,000 + 1,500,000) / 25%


Desire sales in pesos = 1,920,000 / 25%
Desire sales in pesos = P7,680,000

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