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Relevant Cost-Solutions
Relevant Cost-Solutions
Variable costs
Direct materials 262,500
Direct manufacturing labour 300,000
Variable costs 75,000
Fixed manufacturing costs 275,000
Fixed marketing costs 175,000
Total costs 1,087,500
Required:
1. Should Tanisque accept this special order?
2. Suppose plant capacity were only9,000 medals instead of 10,000 medals each month. The special order must either be t
3. As in requirement (1), assume that monthly capacity is 10,000 medals. Tanisque is concerned that if it accepts the speci
Solution:
Profit statement at current level Profit statement (Accepting special order)
Revenue 1,125,000 Revenue 1,375,000
Variable costs (Product level) Variable costs (Product level)
Direct materials 262,500 Direct materials 350,000
Direct manufacturing labour 300,000 Direct manufacturing labour 400,000
Variable costs (Batch level) 75,000 Variable costs (Batch level) 87,500
Total variable costs 637,500 Total variable costs 837,500
Contribution 487,500 Contribution 537,500
Fixed manufacturing costs 275,000 Fixed manufacturing costs 275,000
Fixed marketing costs 175,000 Fixed marketing costs 175,000
Total Fixed costs 450,000 Total Fixed costs 450,000
Total Costs 1,087,500 Total Costs 1,287,500
Profit 37,500 Profit 87,500
Profit statement (Accepting special order: Full /
Monthly capacity 10,000 units Monthly capacity
units Special order request 2,500 units Special order request
Rs. Price per unit 135 Rs. Price per unit (Regular)
nos Total no. of batches 25 nos Price per unit (Special order)
units Batch size 100 units Total no. of batches (Regular)
Rs. Variable cost per batch 500 Rs. Total no. of batches (Special order)
Batch size (Regular)
Batch size (Special order)
Variable cost per batch
e special order must either be taken in full or rejected completely. Should Tanisque accept the special order?
rned that if it accepts the special order, its existing customers will immediately demand a price discount of Rs.10 in the month in which
Profit statement (Accepting special order with Profit statement (Accepting special order:
Rs.10 discount to existing customers) Full / nil; reduced capacity)
Revenue 1,300,000 Revenue
Variable costs (Product level) Variable costs (Product level)
Direct materials 350,000 Direct materials
Direct manufacturing labour 400,000 Direct manufacturing labour
Variable costs (Batch level) 87,500 Variable costs (Batch level)
Total variable costs 837,500 Total variable costs
Contribution 462,500 Contribution
Fixed manufacturing costs 275,000 Fixed manufacturing costs
Fixed marketing costs 175,000 Fixed marketing costs
Total Fixed costs 450,000 Total Fixed costs
Total Costs 1,287,500 Total Costs
Profit 12,500 Profit
ting special order: Full / nil; reduced capacity)
9,000 units
2,500 units
150 Rs.
100
130 nos
25 nos
50 units
100 units
500 Rs.
0 in the month in which the special order is being filled. They would argue that Tanisque's capacity costs are now being spread over m
315,000
360,000
77,500
752,500
472,500
275,000
175,000
450,000
1,202,500
22,500
s are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Tanisque accept
costs. Should Tanisque accept the special order under these conditions?
HDR: 11.24 (Page: 611) Product mix; constrained resources
Small Manufacturing company produces three products; A110, B382 and C657. All three products use the same direct materia
Product
A110 B382 C657
Selling price (Rs.) 1,680 1,120 1,400
Variable cost (Rs.)
Direct materials (Rs.) 480 300 180
Labour and other costs (Rs.) 560 540 800
Quantity of material per unit (kgs) 8 5 3
The demand for the products far exceeds the direct materials available to produce the products. Material costs Rs.60 per kg a
Required:
1. How many units of product A110, B382 and C657 should the company produce?
2. What is the maximum amount company would be willing to pay for another 1,200kgs of materials?
Product
A110 B382 C657
Selling price (Rs.) 1,680 1,120 1,400
Variable cost (Rs.)
Direct materials (Rs.) 480 300 180
Labour and other costs (Rs.) 560 540 800
Quantity of material per unit (kgs) 8 5 3 16 5,000
Contribution 640 280 420 1340
Key factor contribution 80 56 140 276
(A)
Minimum production 200 200 200
Dir Mat. for minimum 200 units 1600 1000 600 3200
(B)
Assume fixed costs covered by original product mix
Maximum price for additional mater 140 116 200
(C)
If production is limited by demand, the order of using additional key factor capacity is: C --> A --> B
ined resources
. All three products use the same direct materials. Unit data for the three products are:'
duce the products. Material costs Rs.60 per kg and a maximum of 5000kgs is available each month. Company must produce a minimum o
r 1,200kgs of materials?
Product
A110 B382 C657
Sales 336,000 224,000 1,120,000
Variable cost (Rs.)
Direct materials (Rs.) 96,000 60,000 144,000
Labour and other costs (Rs.) 112,000 108,000 640,000
Quantity of material per unit (kgs) 8 5 3 16
Contribution 128,000 56,000 336,000 520,000
Key factor contribution 16,000 11,200 112,000 139,200
Blackarm Ltd. Makes three products and is reviewing the profitability of its product line. You are given the follow
Product A B C
Sales (in units) 100,000 120,000 80,000 300,000
£ £ £
Revenue 1,500,000 1,440,000 880,000
Costs:
Material 500,000 480,000 240,000
Labour 400,000 320,000 160,000
Overhead 650,000 600,000 360,000 1,610,000
Profit / Loss -50,000 40,000 120,000
The company is concerned about the loss on product A. It is considering ceasing production of it and switching th
You are told:
(i) All production is sold
(ii) 25% of the labour cost for each product is fixed in nature.
(iii) Fixed administration overheads of £900,000 in total have been apportioned to each product on the basis of un
(iv) Ceasing production of product A would eliminate the fixed labour charge associated with it and one-sixth of t
(v) Increasing the production of product C by 100,000 units would mean that the fixed labour cost associated with
Required:
a. Prepare a marginal cost statement for a unit of each product on the basis of: (i) the original budget and (ii) if p
b. Prepare a statement showing the total contribution and profit for each product group on the basis of (i) the orig
c. Using your results from (a) and (b) advise whether product A should be deleted from the product range, giving
ch product on the basis of units sold and are included in the overhead costs above. All other overhead costs are variable in na
ated with it and one-sixth of the fixed administration overhead apportioned to product A.
d labour cost associated with product C would double, the variable labour cost would rise by 20% and its selling price would
ion (1): Unit Marginal cost statements Solution (1): Unit Marginal cost statements - If product A is del
A B C Product A B
100,000 120,000 80,000 Sales (in units) 120,000
£ £ £ £ £
15.00 12.00 11.00 Revenue 1,440,000
Variable Costs:
5.00 4.00 3.00 Material 0.00 480,000
3.00 2.00 1.50 Labour 0.00 240,000
3.50 2.00 1.50 Overhead 0.00 240,000
3.50 4.00 5.00 12.50 Contribution 0.00 480,000
Fixed costs
1.00 0.67 0.50 Labour 80,000
3.00 3.00 3.00 Overhead 250,000 360,000
-0.50 0.33 1.50 1.33 Profit / Loss 40,000
verhead costs are variable in nature.
0% and its selling price would have to be decreased by £1.50 in order to achieve the increased sales.
540,000
324,000
270,000
576,000 1,056,000
80,000
790,000
-294,000 -254,000