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Hi, can you tell me what is controllable income? Controllable Profit is Controllable Income – Controllable expenses. I get the expenses part that it is unfair to deduct the expenses beyond manager’s control from the profit. But what would be considered as controllable profit? And does it have anything to do with deducting investment income?
Hello sir. I have read this thread and understood the concept which you are trying to say. Basically we take the relevant cost as the higher of the scrap value or the gain we could have made from choosing to convert the material into a regularly used material. Can you please confirm this understanding by solving this problem?
Ajanta company is calculating the relevant cost of the material to be used on a particular contract. The contract requires 4,200 kgs of material MOMO and this can be bought for $6.30 per kg. The company bought 10,000 kgs of material MOMO some time ago when it paid $4.50 per kg. Currently 3,700 kgs of this remains in inventory. The inventory of material MOMO could be sold for $3.20 per kg.
The company has no other use for material MOMO other than on this contract, but it could be modified it at a cost of $3.80 per kg and use it as a substitute for material JOJO. Material JOJO is regularly used by the company and can be bought for $7.50 per kg.
What is the relevant cost of the material for the contract?