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# OUTCOME 2B

By Scott Jordan,2014-12-03 23:51
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OUTCOME 2B

Preparing Financial Forecast

Megan Limited

Marginal Cost Statement

For the year to 31/12/2007

Per Unit 20,000

? units

? ? 12.00 240,000 Sales Revenue

? Less: Variable Costs

Direct Material 4.00 80,000

Direct Labour 2.50 50,000

(?52,000 - ?12,000)

8.50 170,000

Contribution 3.50 70,000

BEP = Less: Fixed Costs

?48,000 Selling and Distribution Overhead 10,000

? 3.50 48,000

= 13715 units, Profit ?22,000

Megan Limited

Proposed MARGINAL COST STATEMENT

Per This year Next year

Activity

Unit 24,000 18,000 units

units ? Sales Revenue 12.00 288,000 216,000

? ? ? Less: Variable Costs

? ? Direct Material 4.00 96,000 72,000

Direct Labour 2.50 60,000 45,000

Direct Production Overhead 2.00 48,000 36,000

8.50 204,000 153,000

3.50 84,000 63,000 Less: Fixed Costs

48,000 48,000 Profit ?36,000 ?15,000

The margin of safety for THIS year is 24,000 units 13,715 units =

10,285 units.

Relevant Costs

; Short-term planning decisions require information for the

purpose of making decisions involving choice, where the

choice is the preference of one alternative against other

less desirable options.

; In this analysis, relevant costs are costs that will enable the

preferred options to be identified.

; Relevant costs are future, differential costs that come into

existence when a decision is made. They also differ

depending on the option selected.

Example 2.8 P122

Opportunity Costs机会成本

This concept has been borrowed from Economics 在经济学上是

一种非常特别的既虚既实的一种成本。。A formal definition for

Opportunity Cost would be:

"The value of the next best opportunity lost as the result of

preferring the chosen alternative to the rejected alternative".它是

1笔投资在专注于某一方面后所失去的在另外其它方面的投资获利机会

(Oxford English dictionary) 工作P对于工作Q来说具有机会成本；但工作Q对于工作P来说就已经没

有机会成本了；因为工作P的收益比工作Q小。因此所谓机会成本实际上

只是相对机会成本而没有绝对机会成本。当一个人正在从事的工作收

益比较低时；相对于你所能从事的更高收益的工作来说；就产生了机会

成本。

由于成本作为一种代价耗费是总是趋向于最小化的；因此从事一项工作；它

的机会成本越小越好；它的最小值自然要包括0值以下的负数。

Example 2.10 P126

Bravo Limited ?

Estimated costs of making component AA1

Materials 14,000 Labour 12,000 Variable Overheads 3,000 Fixed Overhead (direct). These costs will stop if we buy 6,000 component AA1 from Delta Limited.

Fixed Overhead (common). These costs will continue if 12.000 we buy component AA1 from Delta Limited.

TOTAL COST 47,000

Solution to Example 2.10

We should never make the comparison of the ?47,000 total cost

of manufacturing AA1 with the buying-in cost of ?40,000.

This is because Bravo Limited have allocated ?12,000 common

fixed costs which will continue, even if the manufacture of

component AA1 should cease. All other costs, totalling ?35,000

might be saved, depending on whether labour can be deployed

elsewhere.

Bravo Limited ?

Revised estimated costs of making component AA1

To allow comparison with quote from Delta Limited

Materials 14,000

Labour 12,000

component AA1 from Delta Limited.

TOTAL COST 35,000

A comparison of this ?35,000 avoidable cost with the offer

of ?40,000 is the correct one to make. In this example, it is

cheaper for Bravo Limited to continue to make component

AA1.

This conclusion might well be different if we are working to

full capacity, when buying in the component would release

capacity to do other work.

Sell or Process Further Decision

Doing something additional with a view to adding value to the firm. The most obvious example is a decision to process a semi-finished

product further, rather than selling it in its present condition.

To achieve the requirement of outcome 1 & 2, you

should be satisfying the following:

Outcome 1: Operating Statement

computed

Selling/Dist Overheads correctly computed Profit Margin correctly computed

Selling price correctly computed Format acceptable and layout neat

Outcome 2: Marginal Costing

Total Contribution for each alternative is

correct;

Total profit for each alternative is correct Format acceptable and layout neat; A short report could outline each option; Recommendation is made and rational

justification is given

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