Cost Accounting Exercises
Essay by Safety Mine • February 11, 2019 • Course Note • 2,022 Words (9 Pages) • 545 Views
M19 – tutorial questions, relevant costs, solutions
Note: the more numerical tutorial questions are intended as learning aids. Questions which are mainly numerical are not typical examination style questions
E 13.3: New customer order
Spare capacity in U Division = (27,000 – 15,000 – 10,000) = 2,000 units.
Spare capacity in D Division = (13,500 – 10,000) = 3,500 units.
Effect on profits of accepting the new order:
Price paid by customer 3,000 * £185 = £555,000
Lost external sales in U (3,000 – 2,000 = 1,000 units) * £100 = (£100,000)
Incremental variable costs in U 2,000 * £70 = (£140,000)
Incremental variable costs in D 3,000 * £90 = (£270,000)
Incremental profit £45,000
E13.4: Corporate Incentive Company, relevant costs
Note | Type of Cost | £ |
(i) | Trainer fees (labour cost + contribution foregone ) | 6,500 |
(ii) | Hotel accommodation costs (future outlay cost) | 3,500 |
(iii) | Coach running costs (variable fuel + specific fixed costs) | 620 |
(iv) | Driver costs (salary and bonus to be paid as this is the cheaper alternative than paying £1300) | 1,100 |
(v) | Training brochures (£1500 sunk, opportunity saving by avoiding scrapping is relevant) | (500) |
(vi) | General overheads (incurred cost only- absorbed fixed overhead is for product costing and is not the relevant cost) | 600 |
Total costs | 11,820 | |
10% Profit mark-up | 1,182 | |
Selling price quote | 13,002 |
E13.8: Stay Clean – discontinuation
The relevant costs of the decision to cease the manufacture of TD need to be ascertained:
Cost or Revenue Working reference Amount (£)
Lost revenue Note 1 (96,000)
Labour cost saved Note 2 48,000
Lost contribution of other products Note 3 (71,000)
Redundancy and recruitment costs Note 4 (3,700)
Supplier payments saved Note 5 88,500
Sublet income 12,000
Supervisor cost Note 6 0
Net cash flow (22,200)
Answer: No, it is not worthwhile ceasing to produce the TD now.
Note 1: All sales of TD will be lost for the next 12 months, this will mean lost revenue of 1,200 units x £80 = £96,000
Note 2: All normal labour costs are saved at 1,200 units x £40 = £48,000
Note 3: Other product sales will be lost.
This will cost the business 5% x ((5,000 units x £80) + (6,000 units x £170)) = £71,000 in contribution.
Note 4: If TD is ceased now, then the following costs will be incurred
Redundancy cost (£6,000)
Retraining saved £3,500
Recruitment cost (£1,200)
Total (£3,700)
Note 5: Supplier payments:
DW (£) WM (£) TD (£) Net cost (£) Discount Gross cost (£)
Current buying cost 350,000 600,000 60,000 1,010,000 5% 1,063,158
Loss of TD (60,000) (60,000) 5% (63,158)
Loss of related sales (17,500) (30,000) (47,500) 5% (50,000)
New buying cost 921,500 3% 950,000
Difference in net cost 88,500
Note 6: There will be no saving or cost as the supervisor will continue to be employed on a full time basis.
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