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Relevent Cost Math

1. ABC Company manufactures consumer goods like soft drinks, biscuits, and cake. An outside supplier offered to sell biscuits to ABC for 35 TK per packet. ABC gathered cost information and totals 36 TK per 900 biscuit unit. 2. Imperial Jewelers is considering a special order for 20 gold bracelets at 190$ each. Their regular bracelet costs 165$ to make but this special order requires additional 50$ per unit in special materials. It would also require a 250$ special tool with no other use.

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Fahim Mahmud
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33 views

Relevent Cost Math

1. ABC Company manufactures consumer goods like soft drinks, biscuits, and cake. An outside supplier offered to sell biscuits to ABC for 35 TK per packet. ABC gathered cost information and totals 36 TK per 900 biscuit unit. 2. Imperial Jewelers is considering a special order for 20 gold bracelets at 190$ each. Their regular bracelet costs 165$ to make but this special order requires additional 50$ per unit in special materials. It would also require a 250$ special tool with no other use.

Uploaded by

Fahim Mahmud
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. ABC Company Ltd. manufactures variety consumer goods like; soft drinks, biscuit, cake etc.

The company usually produces the goods by themselves. A supplier offer the company to buy
the biscuit from their organization and the price would be TK. 35 per packet. To evaluate this
offer, ABC ltd has gathered the following information relating to its own cost of producing the
biscuit in their company.
Particulars Per unit Total cost for
cost 900 packets
Flour 2 1800
Eggs 3 2700
Oil 4 3600
Yeast 2 1800
Sugar 5 4500
water 4 3600
Quality control engineers 1.5 1350
Assembly line workers 1.5 1350
Production managers 2 1800
Delivery truck drivers 1 900
Variable manufacturing 3 2700
overhead
Fixed manufacturing 4 3600
overhead, traceable*
Fixed manufacturing 3 2700
overhead, allocated
Total cost 36
Note: *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale
value).
Required:
1. Assuming that the company has no alternative use for the facilities that are now being used to
Produce the biscuits, should the outside supplier’s offer be accepted? Show all computations.
2. Suppose that if the biscuits were purchased, ABC Ltd., could use the freed capacity to launch
a new product; soup. The segment margin of the new product would be $110,000 per year.
Should ABC Ltd., accept the offer to buy the biscuits for $35 per unit? Show all computations.
2. Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be given
as gifts to members of a wedding party. The normal selling price of a gold bracelet is $189.95
and its unit product cost is $165.00 as shown below:
Particulars Per unit Total cost
cost for 20 units
Direct material 80 1600
Direct labor 50 1000
Fixed manufacturing 20 400
overhead
Variable manufacturing 15 300
overhead
Per unit cost 165 3300
Cost of special filigree 50
materials

To produce the gold related product company purchase Flat nose pliers by tk. 50,000 and Round
Nose pliers by TK. 75000,and also some other materials by TK. 100,000.The customer who is
interested in the special bracelet order would like special filigree applied to the bracelets.
Moreover, these special orders also require acquisition of a special tool costing $250 that would
have no other use once the special order is completed. This order would have no effect on the
company’s regular sales and the order could be fulfilled using the company’s existing capacity
without affecting any other order.
Required:
What effect would accepting this order have on the company’s net operating income if a special
price of $190 per bracelet is offered for this order? Should the special order be accepted at this
price?

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