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November 11, 2019 at 12:33 pm
For part B, why do we not need to include the variable costs for Crowners at $30,000?
John Moffat says
November 11, 2019 at 3:31 pm
But I have brought in the variable costs!
I list the contribution from Crowners of 20,000, which is the revenue of 50,000 less the variable costs of 30,000.
July 30, 2019 at 2:53 pm
a)Change in current profit? b) Effect on current profit?
Does the current profit refer to the Rooks’s loss of (30,000)?
August 3, 2019 at 4:38 pm
The current profit is the current profit of the company, which is $5,000.
If they stop producing Rooks, then this profit of $5,000 will change.
August 4, 2019 at 2:32 am
Thanks John! Appreciate your replied.
August 4, 2019 at 10:05 am
You are welcome 🙂
October 30, 2018 at 9:28 am
Thanks John. Presentation well understood. If the relevant benefits of closure is greater than the relevant costs of closure then closure may occur. However, there are other factors (including qualitative factors) to be considered before making a final decision for example loss of business (custom) if we stop Rooks, reorganization costs, redundancy costs (staff dismissal), penalties (compensation to customers).
Having said that, Rooks is making a contribution of $10,000 before fixed costs of $13,000 ($18,000 – $5000) towards overall profit. This contribution would be lost if we stop production and sales of Rooks and will reduced the company’s profit down by $10,000. Of course the results of Crowners will boost the company’s profit if we cease selling Rooks.
So John is it in all cases that a department or product should be closed because it is simply making a loss?
April 25, 2019 at 1:55 pm
You are right that in practice other factors are likely to need to be considered. However in the exam you can only make the decision based on the information given in the question (but in written parts to questions you could certainly be expected to mention other likely factors).
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