Assignment Relevant Costing and

Decision Making
Ghina Fahim Shaikh
17491
Management Accounting
1825
 Ennerdale Company

Part A: Relevant Cost of Material K

Answer C - 30,870

Cost Last Month $19,600/2,000kg

$ 9.80

Revised Cost (+0.05) 9.8*1.05

$ 10.29

Relevant Cost of Material K 3,000kg*$10.29/kg

$ 30,870

Part B: Relevant Cost of Material L

Answer A - $2,200

Relevant Cost of Material L 200kg* $11/kg

$ 2,200.0

Part C: Relevant Cost of Skilled Labour

Answer B - $15,600

Cost of Skilled Labour (800hr * $9 $ 7,600

Opportunity Cost of Skilled Labour $ 8,000
Relevant Cost $ 15,600

Part D: Relevant Cost of Finance

Answer B - $120
 ABC Co.

Calculation for the Shortage of Betta for the year

Total Requirements in Grams

Cakes
Grams used per Cake 0.5
Expected Demand 11,200
Total Required 5600

Cookies
Grams used per Cookie 0.2
Expected Demand 9,800
Total Required 1960

Shakes
Grams used per Shake 1
Expected Demand 2,500
Total Required 2500

Total Shortage of Betta 10060

Calculation of Contirbution per gram of Betta

Cakes Cookies Shakes
$ $ $
Contribution per Unit 2.6 1.75 1.2
Grams of Betta per Unit 0.5 0.2 1

Ranking
$ $ $
Contribution per gram 5.2 8.75 1.2
Rank 2 1 3

Optimum Production Plan

Product No. to be Produced Grams/unit Total grams/product
Shakes (Contract) 5,000 1 5,000
Cookies 9,800 0.2 1,960
Cakes 10,080 0.5 5,040
Total Contribution
Less: Fixed Costs
Part B: Breach of Contract with Encompass Health

1. The production is still producing a positive contribution

2. Breach of contract will prove to be bad for the business as it will relay the fact that ABC Co. is a corporation which
agreements.

3. There would be legal reprecussions to the breach of contract which will be a lot more costly and damaging not only
reputation. The corporation cannot afford such a legal battle.

4. Considering the large order placed by Encompass Health, it can be asusmed it is one of the regular and important c
their credibility will be lost so will a regular and permanent customer.

Therefore, it is advisable for the company to not breach the contract as it'll be far more deterimental than continuing w
 Shakes (Contract)
$
1
1

$
1
4

uction Plan
Cummulative Grams Contirbution/gram Total Contirbution
5,000 1 5,000
6,960 1.75 17,150
12,000 2.6 26,208
48,358
-3000
45,358
ABC Co. is a corporation which cannot be trusted to follow through their

re costly and damaging not only for the profits of the corporation but their

e of the regular and important customers. If the company breaches the contract,

deterimental than continuing with it.