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Hello Sir thank you so much for your prompt responses to all queries.
I have two questions regarding part ( a) firstly that how the lost discount of $19000 has been calculated
If the production of Td is ceased .
Secondly why only the material cost saved on DW and WM is calculated
And not labour cost provided the production of TD is ceased
I mean will the labour cost for the respective units be not saved by ceasing TD
Thank youIf the stop TD and sales of the other two are reduced, then it means they will produce 4750 DW and 5700 WM.
The material cost using the cost card figures will be (4750 x $70) + (5700 x $100) = 902,500.However, the cost card figures are net of a 5% discount, which means for every $95 they pay, the full price would be $100.
So….the full price of what they are buying is 902500 x 100/95 = 950,000. Which would assume a discount of 5% which is 950,000 – 902,500 = 47,500 (same as 5% x 950,000).But…..because the full total price is now in the range 900,001 to 960,000, they will only get a discount of 3% on the full price.
So the discount they will get is 3% x 950,000 = 28,500.So…..the lost discount is 47,500 – 28,500 = 19,000.
With regard to the labour, because we have calculated the lost contribution (excluding material because this is dealt with separately) this is automatically taking into account not just the lost revenue but also the saved labour cost.
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