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Stamford University Bangladesh
MBA Program, Dhanmondi Campus
Cost and Management Accounting

Course Teacher: Shahadat Hosan, E-mail: shad@asia.com

Relevant Cost for Decision Making

Exercise-13-8: Bed and Bath, a retailing company has two departments, Hardware and Linens. A recent monthly contribution format income statement for the month follows: Department Total Hardware Linens
Sales $ 40,00,000 $ 30,00,000 $ 10,00,000
Variable expenses 13,00,000 9,00,000 4,00,000
Contribution margin 27,00,000 21,00,000 6,00,000
Fixed expense 22,00,000
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Thus, the completed analysis would be: Make Buy
Total cost, as above......................................... . $570,000 $630,000
Rental value of the space (opportunity cost) ....... 80,000 ………...
Total cost, including opportunity cost ................. $650,000 $630,000
Net advantage in favor of buying .......................... $20,000

Problem 13-21:
Birth Company normally produces and sells 30,000 units of RG-6 each month. RG-6 is a small electrical relay used as a component part in the automotive industry. The selling price is $ 22 per unit, variable costs are $ 14 per unit. Fixed manufacturing overhead costs total $ 1, 50,000 per month, and fixed selling costs total $ 30,000 per month.

Employment –contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company’s sales to temporarily drop to only 8,000 units per month. Birch Company estimates that the strikes will last for the two months, after which time sales of RG-6 should return
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