HOMEWORK 41 RELEVANT COST FOR DECKION MAKING Alobiem 1 Sell or Process Further + Product A and 8 are produced ina joint process. At uplit -oF point, Product A is complete whereas product @ can be process further - The Follo~ wing additional ingormation is available + Product ’ 8 Quontity in unit $3,000 $10,000 Selling pice / unt At Split - OFF £10 g2s Te Prcesed Further $s $20,000, casts Apter Split oF paform $e incremental analysis For prc ® @) Show your sorvtion and Incement Revenue $ 25,000 Incement Casts 20, 000 Increase in propite due 8s, 000 ro further preceuing b) Give your recommendation In this case, they Should pro” Further the product @ becowe ie processing, Further increase in operating income or tne profit. fa ae nNN e,Problem 2: Decision To Add er Drep Product Line ASA compary has ree products: Product A, Product B ond product c. Income statements oF ane three product lines For he lotest inonth are given bow: Product line A 8 © sores $ Aut 000 $ 314,000 8 54@ ,000 Variable costs 241,000 169,000 $21,000 contribukon mogin #2201000 as ,000 $247,000 Dicer Fixed casts 41,000 @.000 11 4 1000 Auccatech Fixed Costs 43. 000 621000 120,000 Net mcome 42100 $3,000 gA510CO We the incremental appioach to determine if product ip Product 8 -Awuld be dropped or Not @}) rod your cowution Variable costs avoided ¢ 1,000 Direct Fixed costs avoided ¢ CO ¢ 255,000 less: Sales Revenue lost ¢ 314,000 Decrease in Net income of the $54,000 company SSS b) cive your rewmmendation ince vnen We drop the procuct B the company will lcose ME sale revenue prom the Produd tine. co, I aiggest not to cbop procuc B becawe the company will also obtain gains in the Form of anoided costs.Problem 3: Speuial order Pricing A company is proclucing , an overage , 10,000 Units of product A per month despite hoving 30" more capacity» Costs per unit op product A axe ay ponuns ¢ Direct material ¢ @-00 pired labor 6.00 Naviable factory Overneadt 100 Variable yelling expense 0.60 Fixed Factory overhead 4.00 Fixed office expense: 2100 $20.50 the compony received o spedal orcler OF 2,080 units of POAUCE F at $'1F,C6O per unit prom anew customer. Should the company accept me spedal order, pvidect that the customiee hos agreecl to poy the Variabe selling eypense fa ackdition To ane price the produck? @) chow you solution increment approach Direor mareriat $9.00 Dived labor 6.00 Variable Facuy overiead 2.00 2 15.00 b) Give your recommendation F suggest tat the company sMould accept te «pecial orden. since the lncement cast per unit I t€35 sat the price egperecl i the special order. Ip they will accept the pedal order it will generate additional cunrioution, fa units -Frupiem 4; Make or pay Decision the estimated coms of producing G,000 units of @ component ore Per unit yoral iver material gio ¢ 60,000 tired HAbor 4 4,000 Applied VaNAbIe Yeactuny Overtetact 9 $4,000 Applied Fixed Facto) overnead ir 44,000 gus per direct labor dollar ~ #34 ‘the same canipenent can be purchased trem market at oprice of ¢24 per wait + Ig tne Gmponem & purchased pom market 256 of tHE pixecl FACtDY overhRee wait be soved growl syne Gunpenent be purchayed From ane market 7 Show Your olution Per unit roto! rr) make Buy Purchase price gaa € 14,000 Direct material g10 ¢ G0,000 direet taber e 48,000 Variaite overhead 54,000 Relevant Fixecl Overhead 7 18,000 forall Relevant costs e350 $24 FBO /COO FORK Diggerence in Fovor of Buying, 24 ¢ b) Give your reccnmendation Ain this cae, £ recommencl sat the component chould be purchasect prom the market becawe i Would HE more cast eFFectVe by #1 x gG,000+ $@,000- Figaroa Boyintyny P.