Solution for relevant cost

Output

120000

Kgs

Total

Per kilograms

Sales

 $ 5,40,000

4.5

Variable Expenses

 $ 3,60,000

3

Contribution Margin

 $ 1,80,000

1.50

Fixed Expenses

 $ 1,20,000

Net Operating Profits

 $ 60,000

1. Break Even Points (KGs.)

80000

2. Break Even Points in Dollars

 $ 3,60,000

3. Target sales to earn target profits of

 $90,000

180000

4. Margin of Safety ($)

 $ 1,80,000

1. Fixed Lease Charges

 $ 20,000

Variable Lease Charges

 $ 12,000

hence at the level of production, the company should

Pay lease rent of $ 0.10 rather than going for a fixed plan.

2. Break Even Points(Kgs)

38709.68

3. BEP ($)

 $ 1,74,194

4. Target sales to earn target profits

150000

Variable Manufacturing Overhead

 $ 2,25,000

Fixed Manufacturing Overhead

 $ 6,30,000

Direct Labour hours

45000

Overhead rate per hour

 $ 19

VO / hour

 $ 5

FO per hour

 $ 14

Variable Manufacturing cost per units

Direct Material cost per units

 $ 21

Direct labor cost per units

 $ 41

VO per units

 $ 5

Total Variable Cost per units

 $ 67

Suppliers' price is $ 78 per unit hence it is advisable to buy.

Fixed cost is irrelevant

Total Cost per units of Manufacturing of part U 67

Per Units

Direct Material Cost

 $ 8.70

Direct Labour Cost

 $ 2.70

Variable Overheads

 $ 3.30

Supervisor salary

 $ 1.90

Dep for sp Equipment

 $ 1.80

Allocated General Overheads

 $ 5.50

Total Cost per units

 $ 23.90

Relevant cost if buy from suppliers

Suppliers price

21.4

Allocated General Overheads

4.64

Relevant total cost

26.04

As the relevant supplier cost is more it is better to manufacture it.

Particulars

A

B

Selling price without further processing

 $ 21

 $ 44

Total cost of Manufacturing(36+15) = 51

 $ 16

 $ 35

Profits if sold without processing

 $ 5

 $ 9

Profits when it is further processed

Selling Price

 $ 32

 $ 64

less : further processing cost

 $ 14

 $ 28

Net Realisable Value

 $ 18

 $ 36

Total cost of Manufacturing(36+15) = 51

 $ 17

 $ 34

Profits when it is further processed

 $ 1

 $ 2

It is better to sell as it is because it is making more profits

compare to further processed

Statement of Net Operating Incomes

If Continued

If discontinued

Sales

150000

0

Less: Operating Cost

Variable Expenses

72000

0

Contributions

78000

0

Fixed Manufacturing Exp

50000

20000

Fixed Selling & Distribution Exp

33000

20000

Total Cost

83000

40000

Net Operating Profts (Loss)

-5000

-40000

b. if the company discontinued than a loss will increase by 35000