[teddylove]

Sir John, I have studied and would like to double confirm:

A) When we have Product A (one type of Product), and we would like to (outsource or in-house manufacture), this is how we calculate relevant cost

Outsourcing cost (Total cost of Purchasing/ also known as Variable cost of buying)
vs.
In-house Manufacturing cost (total variable cost and avoidable cost, for example, DM,DL, Variable MOH, Specific Fixed Cost, Incremental cost, avoidable cost).

B) When we have two different products which are currently in-house manufacturing

Variable Cost, Incremental Cost, Avoidable cost (Minimum cost) of Product A
vs
Minimum Cost of Product B

In this case, unavoidable cost are not included in the relevant cost, as they are the same in both situation as both are still in house manufacturing

The lower cost will be viable for decision making

C) When we have one product which are in-house manufacturing with limiting factor (Machine Hour, Labour Hour, Materials), this is how we calculate relevant cost

Limiting Factor A (Machine Hour)
only the variable cost (DM, DL, Variable MOH)
vs
Limiting Factor B (Labor Hour)
only the variable cost (DM, DL, Variable MOH)

in this case, the specific/ incremental fixed cost are not included, as they are the same in both situation

Relevant cost are difficult to understand, but it is easier if we understand the concept and the decision of the company. A confirmation from you would mean so much to me, appreciate Ask my tutor forum so much !

[teddylove]

Sir, it is said that Zero Based Budgeting (ZBB) eliminates budgetary slack (which are discretionary costs and support activities) in the fixed budget. Can we incorporate budgetary slack to certain extent in ZBB?

Or is it only those selective costs like Variable Costs (costs with clear input and output relationship) only can accept budgetary slack to a certain extent?

[teddylove]

Sir, I had understood that Part A of the question (means the Robber Co is currently manufacturing the production, hence, those avoidable/ specific fixed cost are included)

Wheres, the Part B says that Robber Co (wishes to increase), means it haven’t incur, so specific/ avoidable cost are excluded (Am I right in my first understanding Sir)

Sir, besides,

For Note 3, the statement had stated clearly that the heat and power/ fixed cost,
it is incurred irrespective of whether the components are manufactured in house or not.

For Note 4, the fixed cost haven’t incur, so not included in the variable cost

For Note 5 of Specific Fixed Cost,
Attributable fixed costs are fixed costs that only occur is the particular process or production takes place.

In conclusion, Total fixed cost irrespective of incur or not, it is irrelevant to the production unit, because regardless of the total units of 1 unit or 10 unit, it would still be the same,

If the question did not give assumption, can I exclude fixed cost from the VC of internal manufacturing vs VC of outsourcing (if the manufacturing haven’t happen)?

[teddylove]

Tq Sir John, but you havent answer my question of this 🙁

sir, for calculating standard profit

we only calculating
std SP- All the production cost,

but we dont take into account the non production cost

am i right sir?

[teddylove]

sir, for calculating standard profit

we only calculating
std SP- All the production cost,

but we dont take into account the non production cost

am i right sir?

[teddylove]

Thank you Sir John. I finally understood relevant costing based on your assistance in Ask My Tutor Forum

[teddylove]

Understood sir. thanks for clarification

[teddylove]

the installation is expected to take one week to complete and would require three engineers each of the following is paid monthly salary of $4000. the engineers just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but other two have to be moved from Contract X in order to complete this one. Contract X generates a contribution generates the contribution of $5 per engineer hour.there are no other engineers to continue the Contract X if these two companies are taken off the job it would mean that T Co would miss it contractual deadline of Contract X by one week. As a result T Co would have to pay a one-off penalty of $5000. Since there is no other work for scheduled for their engineers in one week’s time it will not be a problem for them to complete Contract X at this point

i am calculating the lost contribution from contract X
sorry sir, but the question does not state the “engineer hours”
i think i had made a mistake by comparing it ,
if the question didnt mention engineering hour
how do we compare both lost contibution and penalty to find the cheaper cost then?

[teddylove]

A special job for a customer require 8 tonnes of a material M. The company no longer uses this material regularly although it holds 3 tonnes in inventory. These originally costs $44 per tonne, and could be resold to a supplier for $35 per tonne. Alternatively these materials could be used to complete another job instead of using other materials that would cost $126 to purchase. The current price of Material M is $50 per tonne.

In comparing in the first question and second question (current post)

I would like to confirm my understanding.

for the first question, company has either choice of buying “Swipe 2” and modify “Swipe 1”, and (Swipe 1 is not currently using in the production process. in this statement, we would like to find the cheapest (cost)

for the second question, company is currently using material M, and we would like to compute what the company would do with the material if they did not do the special job, finding the better total (savings).

For relevant cost, we would like find the
1) cheaper cost
2) higher savings.

I would like double confirm my understanding, and thank you Sir John

[teddylove]

sir for relevant cost, we choose which one is cheaper is it?

between lost contribution ($8 hours X $5 per hour X 2 engineer X 7 days)= $560
and penalty =$500,

so the cheaper one is included as relevant cost, as its cheaper?
bcos based on my understanding, company would like to incur a cheaper cost for their decision making

[teddylove]

Dear sir, for flexed budget, i would like to double confirm

for service industry in order to derive at Std cost, we would flex with ‘actual sales unit’

for production industry, we would flex with ‘actual production unit’

[teddylove]

Thank you SIr John, you make my learning easier! Bless you!

[teddylove]

Hi SIr John,
in batches in ABC,
based on my understanding,

for example,

each batch inside consists of production units,

the overhead costs are absorbed by production units inside the “batch”,

a past year question has change the question by increasing the amount of batch from 400 to 500,

so we need to determine the new amount of production unit inside the batch to determine the accurate overhead cost allocation right?

[teddylove]

Thank you Sir John, I finally understood this topic well. Wish you well.

[teddylove]

unincorporated entities consist of (individuals) include
1) sole proprietor forming his/her own business
2) partnership

right sir? and the treatment of it are looking on individual basis

whereas incorporate entities are solely business, and the tax treatment of it are looking at the company basis.

thank you sir

[teddylove]

to acquire the lowest possible minimum WACC

[teddylove]

Based on the lecture I had just watch, is the optimal capital structure is
60 (equity) : 40 (debt) right?
Thank you Sir John

[Author]

Posts