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    CVP Relevant Cost

    Uploaded by

    Soumya Ranjan Panda
    1. The document discusses various accounting and business concepts including the cost-volume-profit relationship, operating leverage, make or buy analysis, sunk costs, and relevant costs. 2. It provides examples and calculations to illustrate how to apply these concepts in decision making, such as whether a division should be closed, whether to accept an additional order, and whether to make or buy a component. 3. Relevant data and sunk costs are distinguished, with sunk costs defined as costs already incurred that do not affect future costs, while relevant data includes only incremental costs and revenues of potential decisions.

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    CVP Relevant Cost

    Uploaded by

    Soumya Ranjan Panda
    23 views15 pages
    1. The document discusses various accounting and business concepts including the cost-volume-profit relationship, operating leverage, make or buy analysis, sunk costs, and relevant costs. 2. It provides examples and calculations to illustrate how to apply these concepts in decision making, such as whether a division should be closed, whether to accept an additional order, and whether to make or buy a component. 3. Relevant data and sunk costs are distinguished, with sunk costs defined as costs already incurred that do not affect future costs, while relevant data includes only incremental costs and revenues of potential decisions.

    Original Description:

    CVP_Relevant Cost of any company

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    1. The document discusses various accounting and business concepts including the cost-volume-profit relationship, operating leverage, make or buy analysis, sunk costs, and relevant costs. 2. It provides examples and calculations to illustrate how to apply these concepts in decision making, such as whether a division should be closed, whether to accept an additional order, and whether to make or buy a component. 3. Relevant data and sunk costs are distinguished, with sunk costs defined as costs already incurred that do not affect future costs, while relevant data includes only incremental costs and revenues of potential decisions.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    23 views15 pages

    CVP Relevant Cost

    Uploaded by

    Soumya Ranjan Panda
    1. The document discusses various accounting and business concepts including the cost-volume-profit relationship, operating leverage, make or buy analysis, sunk costs, and relevant costs. 2. It provides examples and calculations to illustrate how to apply these concepts in decision making, such as whether a division should be closed, whether to accept an additional order, and whether to make or buy a component. 3. Relevant data and sunk costs are distinguished, with sunk costs defined as costs already incurred that do not affect future costs, while relevant data includes only incremental costs and revenues of potential decisions.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 15

    Day 5

    Application of CVP Relationship


    Close or Continue
    Additional Order
    Limiting Factor
    Make or Buy
    Operating Leverage
    Contribution/ Profit
    1 2
    Sales 200000 200000

    Variable Cost 120000 160000


    FC 60000 20000
    TC 180000 180000
    Profit 20000 20000
    3
    200000 Operating Leverage

    20000 C/P
    160000 increase in Sales
    180000 profit will
    20000
    A B C Total
    Revenue 250,000 150,000 450,000 850,000
    Total Cost 270,000 100,000 370,000 740,000
    -20,000 50,000 80,000 110,000

    TC consists of the following


    Fixed 60%
    Variable 40%

    Should A be Closed?
    Additional Order_Accept or Reject

    Capacity Operation 40%


    Units 1000
    Direct Material 20
    Direct Labour 50
    Manufacturing Overhead
    Fixed 80
    Variable 30
    Totlal Cost 180
    Sales 200

    Additional Order
    quantity 600
    Price 125

    new capactity to be created

    Capacity Operation 100%


    units 1000
    Direct Material 20
    Direct Labour 50
    Manufacturing Overhead
    Fixed 80
    Variable 30
    Totlal Cost 180
    Sales 200

    Additional Order
    quantity 600
    Price 125
    Present new Total

    Present new Total


    1000 600 1600
    Sales 200000 75000 275000
    less
    Variable Cost
    DM 0 12000 12000
    DL 0 30000 30000
    VMO 30000 18000 48000
    Total Variable Cost 30000 60000 90000
    Contribution 170000 15000 185000
    less
    Fixed Cost
    FMO 80000 30000 110000
    Profit 90000 -15000 75000
    A B C
    SP 25 40 100
    VC 15 25 70
    Labour hours per unit 1 3 4
    Demand 10000 8000 5000
    Fixed Cost 150000
    Total Time Available (hours) 42000
    Make or Buy

    A is the manufacturer of an electronic product. The selling price of the product is 5


    per unit and contribution to sales ratio is 25%. At present most of the components
    main product are being manufactured within the same plant.

    Recently the company received an offer from M ltd for one of the components: SA

    10,000 units of SAT-12 @ 25 (one month's requirement)

    Store manager suggested that the company should go for purchase as it will save R
    unit (total cost = 28)

    Before placing the order the purchase manager wanted to examine the cost of ma
    same.
    5 Following is the cost of making one unit of SAT-12

    Direct material: 5
    Direct Labour: 10
    Variable Manufacturing overheads:5
    Fixed Manufacaturing overhead: 8 (depreciation of the factory building)

    He wanted to know what is the operational effect of not producing the


    product( alternative use of released cost)
    Released capacity can be used to manufature additional 50 units of main product.
    e selling price of the product is 5000
    present most of the components of the
    ame plant.

    for one of the components: SAT-12.

    ment)

    go for purchase as it will save Rs. 3 per

    anted to examine the cost of making the

    the factory building)

    of not producing the

    tional 50 units of main product.


    Relevant Data and All Data

    Revenue 25,000 units

    Selling Price 2,500 per unit


    Material 500 per unit
    labour
    workers 20
    hour 2,000 per worker
    rate 140 per hour

    manufacturing overhead 750,000


    Markeing overhead 500,000
    Restructure proposal
    Increase the wage by 20
    it will reduce the number of worker 15
    Additional expense for improving
    Working condition 350,000
    All Data Relevant Data
    Present with change Differential Cost
    Revenue 0 Revenue
    less 0 less
    Cost 0 Cost
    Material 0 Material
    labour 0 labour
    mo 0 mo
    mkt o 0 mkt o
    Reorg 0 Reorg
    0
    0
    profit 0 profit
    0
    Change in profit 0
    Relevant Data
    No change Change
    0 0

    0 0
    0 0
    0 0
    0 0
    0
    0 0

    0 0

    0
    Sunk Cost
    New manager proposed that the company
    should shift to Cloud based accounting
    services and dispose off the existing
    accounting package

    software Cloud
    Accounting Software 100000
    Life 5 Sunk cost
    Four years old
    Staff cost
    Accountants' salary 20000 5000 Relevant
    Annual cloud Charge 12000

    if sold at the beginning of the year 18000


    if sold at the end of the year 5000
    Continue Go to Cloud Differential
    Amortisation 20000 0 20000
    Write off 20000 -20000
    Staff cost 20000 5000 15000
    Cloud Charge 0 12000 -12000
    Sale proceeds -5000 -18000 13000
    35000 19000 16000

    ###

    Sunk Cost are cost that have


    already been incurred. They do
    not affect any future cost and
    cannot be changed by any
    current or future action.

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