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Activity 7 Relevant Costing

Thalassines Kataskeves, S.A. should continue its bilge pump product line as discontinuing it would result in a $150,000 loss due to avoidable fixed costs exceeding contribution margin. For Wexpro, Inc., processing product X15 further would be advantageous as an additional $11,500 gain could be earned beyond the split-off point sale price. Delta Company would increase its net income by $39,000 if it accepts a special order of 15,000 units due to revenues exceeding variable costs of production and sales.

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Bernadette Shine Cabaya Calawigan
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38 views2 pages

Activity 7 Relevant Costing

Thalassines Kataskeves, S.A. should continue its bilge pump product line as discontinuing it would result in a $150,000 loss due to avoidable fixed costs exceeding contribution margin. For Wexpro, Inc., processing product X15 further would be advantageous as an additional $11,500 gain could be earned beyond the split-off point sale price. Delta Company would increase its net income by $39,000 if it accepts a special order of 15,000 units due to revenues exceeding variable costs of production and sales.

Uploaded by

Bernadette Shine Cabaya Calawigan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Thalassines Kataskeves, S.A.

, of Greece

(Avoidable Fixed Cost)


Savings - Fixed Costs = Advertising + Salary of Product-Line + Insurance on Inventory
= 270,000 + 8,000
= 310,000

Financial Advantage (Disadvantage)


to discontinue bilge pump = Avoidable Fixed Costs – Contribution Margin

= 310,000 – 460,000
= (150,000)

Recommendation: I would recommend that the Bilge pump product line must be
continued

Wexpro, Inc
At Split-off Point of $9
Sales = 7,000 units x 9
= 63,000
Costs of materials: 15,000
Expected Gain : 48,000

At Split-off Point of $12


Sales = 7,000 units x 12
= 84,000
Cost of Materials: 15,000
Further Processed Cost: 9,500
Expected Income: 59,500
Allocated = ¼ of material and processing cost
= ¼ (60,000)
= 15,000
Recommendation: It is an advantage for Wexpro. Inc, if product X15 must be processed
further, since an 11,500 is expected to be gained only if it was sold after split-off.

Delta Company

Sales: 15,000 x 14 per unit 210,000.00


Less:
Direct Materials (15,000 x 5.10) 76,000.00
Direct Labor (15,000 x 3.80) 57,000.00
Variable Manufacturing Overhead (15,000 x 1.00) 15,000.00
Variable Selling and Administrative (15,000 x 1.50) 22,500.00
Increase in Net Income: 39,000.00
 If the order is accepted, there will be an increase of net income by
39,000.00

2. At 1.50-unit cost of Variable Selling and Administrative Expense is relevant for


establishing a minimum selling price since the products are produced already, all
variable costs other than selling is considered to be spent and unreconcilable. Fixed
costs are irrelevant since the special order will nit change the company’s fixed costs.

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