5 - Relevant Costing and Differential Analysis

05/02/2022
MANAGEMENT ACCOUNTING
(AC310MAN)
Relevant Costing and Differential Analysis.
Prepared by:
Ms. Grace A. Padiernos, CPA, CMA
PROF. GRACE A. PADIERNOS, CPA, CMA
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05/02/2022
Observe and
Respect the
Republic Act
No. 8293, An
Act Prescribing
the
Intellectual
Property Rights
Law (IPR).
THIS MATERIAL IS INTENDED FOR

AC310MAN ONLY:
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05/02/2022
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RECAP
3
05/02/2022
2 pts
A quantitative technique useful in projecting a firm’s sales and
profits is:
A. Probability distribution theory
B. Linear programming
C. Gantt chart
D. Learning curves
A
A quantitative technique useful in projecting a firm’s sales and
profits is:
A. Probability distribution theory
C. Gantt chart
D. Learning curves
4
05/02/2022
2 pts
The expected value of perfect information is the:
A. Same as the profit under certainty.
B. Sum of the conditional profit (loss) for the best event of each act
times the probability of each event’s occurring.
C. Difference between the expected profit under certainty and the
expected opportunity loss.
D. Difference between the expected profit under certainty and the
expected monetary value of the best act under uncertainty.
D
The expected value of perfect information is the:
A. Same as the profit under certainty.
B. Sum of the conditional profit (loss) for the best event of each act
times the probability of each event’s occurring.
C. Difference between the expected profit under certainty and the
expected opportunity loss.
D. Difference between the expected profit under certainty and the
expected monetary value of the best act under uncertainty.
10
5
05/02/2022
2 pts
Management of a company has asked the internal auditing
department to assist in determining whether a new automated
system should be implemented and whether the supporting
software should be developed in-house, purchased, or leased. This
will require evaluating a sequence of alternatives, each of which
will result in different outcomes. The most effective tool the
company can use to evaluate these choices would be:
A. Ratio analysis
B. Payoff tables
C. Queuing theory
D. Decision tree
11
D
Management of a company has asked the internal auditing
department to assist in determining whether a new automated
system should be implemented and whether the supporting
software should be developed in-house, purchased, or leased. This
will require evaluating a sequence of alternatives, each of which
will result in different outcomes. The most effective tool the
company can use to evaluate these choices would be:
A. Ratio analysis
B. Payoff tables
C. Queuing theory
D. Decision tree
12
6
05/02/2022
2 pts
PERT and the critical path method (CPM) are used for:
A. Determining the optimal product mix
B. Project planning and control
C. Determining product costs
D. Determining the number of servers needed in a fast food
restaurant
13
B
PERT and the critical path method (CPM) are used for:
A. Determining the optimal product mix
B. Project planning and control
C. Determining product costs
D. Determining the number of servers needed in a fast food
restaurant
14
7
05/02/2022
2 pts
Linear programming is an operations research technique that
allocates resources. Mathematical expressions are used to describe
the problem. The measure of effectiveness that is to be maximized
and minimized is the:
A. Constraints
B. Set of decision variables
C. Objective function
D. Derivative of function
15
C
Linear programming is an operations research technique that
allocates resources. Mathematical expressions are used to describe
the problem. The measure of effectiveness that is to be maximized
and minimized is the:
A. Constraints
B. Set of decision variables
C. Objective function
D. Derivative of function
16
8
05/02/2022
2 pts
The constraints in a linear programming model are:
A. Included in the objective function
B. Cost
C. Scarce resources
D. Depended variables
17
C
The constraints in a linear programming model are:
A. Included in the objective function
B. Cost
C. Scarce resources
D. Depended variables
18
9
05/02/2022
2 pts
In the Program Evaluation Review Technique (PERT), slack is the:
A. Uncertainty associated with time estimates
B. Path that has the largest amount of time associated with it
C. Excess time available in the completion of the project after
chasing the critical path
D. Number of days an activity can be delayed without forcing a
delay for the entire project
19
D
In the Program Evaluation Review Technique (PERT), slack is the:
A. Uncertainty associated with time estimates
B. Path that has the largest amount of time associated with it
C. Excess time available in the completion of the project after
chasing the critical path
D. Number of days an activity can be delayed without forcing a
delay for the entire project
20
10
05/02/2022
2 pts
A firm must decide whether to introduce a new product A or B.
There is no time to obtain experimental information; a decision has
to be made now. Expected sales can be classified as weak,
moderate, or strong. How many different payoffs are possible in a
decision tree under these circumstances?
A. 2
B. 3
C. 5
D. 6
21
D
A firm must decide whether to introduce a new product A or B.
There is no time to obtain experimental information; a decision has
to be made now. Expected sales can be classified as weak,
moderate, or strong. How many different payoffs are possible in a
decision tree under these circumstances?
A. 2
B. 3
C. 5
D. 6
22
11
05/02/2022
2 pts
An investment company is attempting to allocate its available funds
between two investment alternatives, stock and bonds, which differ
in terms of expected return and risk. The company would like to
minimize its risk while earning an expected return at lest 10% and
investing no more than 70% in either of the investment
alternatives. An appropriate technique for allocating its funds
between stock and bonds is:
A. Linear programming
B. Capital budgeting
C. Differential analysis
D. Queuing theory
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A
An investment company is attempting to allocate its available funds
between two investment alternatives, stock and bonds, which differ
in terms of expected return and risk. The company would like to
minimize its risk while earning an expected return at lest 10% and
investing no more than 70% in either of the investment
alternatives. An appropriate technique for allocating its funds
between stock and bonds is:
A. Linear programming
B. Capital budgeting
C. Differential analysis
D. Queuing theory
24
12
05/02/2022
2 pts
A bank is designing an on-the-job training program for its branch
managers. The bank would like to design the program so that
participants can complete it as quickly as possible. The training
program requires that certain activities be completed before
others. For example, a participant cannot make credit loan
decisions without first having obtained experience in the loan
department. An appropriate scheduling technique for this training
is:
A. PERT/CPM
C. Queuing theory
D. Sensitivity analysis
25
A
A bank is designing an on-the-job training program for its branch
managers. The bank would like to design the program so that
participants can complete it as quickly as possible. The training
program requires that certain activities be completed before
others. For example, a participant cannot make credit loan
decisions without first having obtained experience in the loan
department. An appropriate scheduling technique for this training
is:
A. PERT/CPM
C. Queuing theory
D. Sensitivity analysis
26
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RELEVANT COSTING AND

DIFFERENTIAL ANALYSIS
27
Decision-
making
Choosing among competing
alternatives.
28
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The decision-making process:
1 2 3 4 5 6
1. Clarify the 2. Specify the 3. Identify the 4. Develop a 5. Collect the 6. Select an
decision criterion alternatives decision data alternative
problem model
29
Decision making is a function of

management.
Role of Management accountant’s role

management is dealing on the quantitative
aspects of the decision.
accountant
Factors to consider in decision
include both quantitative and
qualitative factors.
30
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Relevance
What makes
information Accuracy
useful?
(Hilton)
Timeliness
31
What makes information (esp. costs)

relevant?
1. It will be earned (for income) or incurred (for costs) in the future.
2. Differ among alternatives.
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• Sunk cost - Cost incurred in the past and

Some cost cannot be changed by a future action.
concepts that • Opportunity cost - Benefit forgone by
choosing an alternative course of action.
you should know
33
Some short-term decisions:

3. Keep or drop a
1. Accept or reject 2. Make or buy a
division or
a special order component
product line
5. Prioritizing the
4. Sell or process
use of constrained
further
resources
34
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05/02/2022

3. Keep or drop a
division or
product line
5. Prioritizing the
4. Sell or process
use of constrained
further
resources
35
• One time order.
Special Order • In many instances, the buyer requests

that the sales price be reduced.
• What costs to look for?

 Incremental cost
 Opportunity costs
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05/02/2022
Problem 1
FOUNDER Corporation sells brandies in 800 ml bottles. MEATFRY Inc. makes a special order for 2,000 bottles this
In a typical year 20,000 bottles are sold through and it year and request founder to reduce the sales price to P200
can produce a maximum of 22,000 bottles. For the only, MEATFRY will not purchase the bottles partially
20,000 bottles normal capacity, the following data cost (2,000 bottles or nothing).
was collected.
a. In a typical year, should FOUNDER accept the special
Total Per unit order? What is the minimum price for this special order?
Variable manufacturing cost P 700,000 35
b. If regular sales are forecasted to be 22,000 this year,
Variable selling cost 300,000 15 should FOUNDER accept the special order? what is the
minimum price for this special order?
Fixed manufacturing cost 3,000,000 150
Fixed cost 2,000,000 100 c. if regular sales are forecasted to be 20,500 this year,
should FOUNDER accept the special order? What is the
FOUNDERS’ brandy sells for P500 per bottle. minimum price for this special order?
37
Problem 1
was collected.
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In a typical year, should FOUNDER accept the special order? What is the minimum price
for this special order?
was collected.
What costs to look for?
Total Per unit -Incremental cost
-Opportunity cost
Variable selling cost 300,000 15

Incremental cost  VARIABLE COSTS
NOT Incremental cost  FIXED COSTS
Fixed cost 2,000,000 100 Opportunity cost  No excess capacity
FOUNDERS’ brandy sells for P500 per bottle.
39
In a typical year, should FOUNDER accept the special order? What is the minimum price
for this special order?
Yes, FOUNDER should accept the
Minimum Price = Incremental cost + Opportunity cost
special order, Min P = 50
50 = 50 + 0
FOUNDER Corporation sells brandies in 800 ml bottles. In a

Sales (P200 x 2,000) 400,000
typical year 20,000 bottles are sold through and it can produce
a maximum of 22,000 bottles. For the 20,000 bottles normal (Variable cost) (P50 x 2,000) (100,000)
capacity, the following data cost was collected.
Contribution margin 300,000
Total Per unit
(Fixed cost) Not incremental 0
50 (Opportunity cost) (0)
Profit 300,000
Maximum Sales Special order
Fixed cost 2,000,000 100
FOUNDERS’ brandy sells for P500 per bottle.

MEATFRY Inc. makes a special order for 2,000 bottles this year and
request founder to reduce the sales price to P200 only, MEATFRY Excess capacity
will not purchase the bottles partially (2,000 bottles or nothing).
22,000 20,000 2,000 NO opportunity cost
40
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05/02/2022
Problem 1
FOUNDER Corporation sells brandies in 800 ml bottles. MEATFRY Inc. makes a special order for 2000 bottles this
was collected.
41
If regular sales are forecasted to be 22,000 this year, should FOUNDER accept the special
order? what is the minimum price for this special order?
Minimum Price = Incremental cost + Opportunity cost No, FOUNDER should not accept the
500 = 50 + 450 special order, Min P = 500

Sales (P200 x 2,000) 400,000
Total Per unit
50 (Opportunity cost) (P450 x 2,000) (900,000)
Profit (600,000)
Fixed cost 2,000,000 100 OC = CM of regular sales
FOUNDERS’ brandy sells for P500 per bottle. 450 = 500 - 50
MEATFRY Inc. makes a special order for 2,000 bottles this year and
request founder to reduce the sales price to P200 only, MEATFRY No excess capacity
will not purchase the bottles partially (2,000 bottles or nothing).
22,000 22,000 2,000 Opportunity cost
42
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Problem 1
FOUNDER Corporation sells brandies in 800 ml bottles. MEATFRY Inc. makes a special order for 2000 bottles this
was collected.
43
if regular sales are forecasted to be 20,500 this year, should FOUNDER accept the special
order? What is the minimum price for this special order?
Minimum Price = Incremental cost + Opportunity cost Yes, FOUNDER should accept the
162.50 = 50 + 112.50 special order, Min P = 162.50

Sales (P200 x 2,000) 400,000
Total Per unit
50 (Opportunity cost)(P112.5 x 2,000)(225,000)
Profit 75,000
Fixed cost 2,000,000 100 OC = CM of regular sales
FOUNDERS’ brandy sells for P500 per bottle. 450 = 500 – 50
MEATFRY Inc. makes a special order for 2,000 bottles this year and 112.50 = 450 x
request founder to reduce the sales price to P200 only, MEATFRY ,
will not purchase the bottles partially (2,000 bottles or nothing). Partial excess capacity
22,000 20,500 2,000
Partial opportunity cost
44
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Problem 2
10,000 GTAs x 90% = 9,000
(Bobadilla, 38) ALAINE Enterprise has the capacity to produce 10,000 GTAs, but operates at 90% capacity,
GTAs normally sell for P60 each, and cost an average of P50 to make including a share of monthly fixed
cost of 180,000. A potential buyer has offered to buy 1,000 GTAs at P40 each.
What is the relevant cost per unit? P30

180,000 / 9,000 units = P20 Sales (P40 x 1,000) 40,000
P50 - 20 = P30 (Variable cost) (P30 x 1,000) (30,000)
Maximum Sales Special order Contribution margin 10,000
(Opportunity cost) (0)

Excess capacity Profit 10,000
10,000 9,000 1,000 NO opportunity cost
(10,000 x 90%)
45
Problem 3
(Bobadilla, 32) PATRENZ Corporation sells a product for 20 with variable cost of 8 per unit, PATRENZ could
accept a special order for 1,000 units at 14.
If PATRENZ accept the order, how many units could it lose at the regular price before the decision
become unwise? 500 units
𝒔𝒑𝒆𝒄𝒊𝒂𝒍 𝒐𝒓𝒅𝒆𝒓
Minimum units = 𝒓𝒆𝒈𝒖𝒍𝒂𝒓 𝒔𝒂𝒍𝒆𝒔
,
Regular sales Special order MU =
Sales 20 14 ,
Less: Variable cost 8 8
MU =
Contribution margin 12 6
MU = 500 units
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05/02/2022

3. Keep or drop a
division or
product line
5. Prioritizing the
4. Sell or process
use of constrained
further
resources
47
• A.k.a outsource or produce in-house

Make or buy a
component • What costs to look for?
 Avoidable costs
 Opportunity costs
48
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05/02/2022
Problem 4
MEATFRY Inc. is currently producing its own brandy a. Should M but or make its own brandy? what is
and packages them in 800ml bottles, cost of the maximum price in which M would be better
off in buying than making?
production data under the normal capacity is
10,000 bottles per year shown in the following
schedule: b. Assuming upon halting the production 800,000
of the fixed costs will no longer be incurred,
should M buy or make its own brandy? What is
Total Per unit the maximum price in which M would be better
Variable cost 350,000 35 off in buying than making?
Fixed costs 1,500,000 150 c. Assuming that the facilities freed up upon
halting production will be rented out for an
Founder corporation offers to supply MEATFRY’s needs annual fee of 600,000 should M but or make its
for brandy at a price of 95/bottle. own brandy? What is the maximum price in which
M would be better off in buying than making?
49
Problem 4
MEATFRY Inc. is currently producing its own brandy a. Should M buy or make its own brandy? what is
Founder corporation offers to supply M’s needs for annual fee of 600,000 should M but or make its
brandy at a price of 95/bottle. own brandy? What is the maximum price in which
50
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05/02/2022
Problem 4
off in buying than making? MAKE; P35
10,000 bottles per year shown in the following MAKE BUY
schedule: 10,000 x P95
Variable cost 350,000 950,000
Total Per unit Fixed cost 0
Variable cost 350,000 35

Opportunity cost 0
350,000 950,000
Fixed costs 1,500,000 150
MAKE
600,000
Founder corporation offers to supply M’s needs for
brandy at a price of 95/bottle. Max Price = 350,000 / 10,000 bottles
Max Price = 35
51
Problem 4
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Problem 4
b. Assuming upon halting the production 800,000 of the
MEATFRY Inc. is currently producing its own brandy fixed costs will no longer be incurred, should M buy or
make its own brandy? What is the maximum price in which
and packages them in 800ml bottles, cost of M would be better off in buying than making? BUY; P95
Total Per unit Fixed cost 800,000

Opportunity cost 0
1,150,000 950,000
BUY
200,000
Max Price = 95
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Problem 4
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Problem 4
c. Assuming that the facilities freed up upon halting
MEATFRY Inc. is currently producing its own brandy production will be rented out for an annual fee of 600,000
should M but or make its own brandy? What is the
and packages them in 800ml bottles, cost of maximum price in which M would be better off in buying
than making? EITHER MAKE OR BUY; P95
Total Per unit Fixed cost 0
Opportunity cost 600,000
950,000 950,000
Indifferent
Max Price = 95
55
Problem 5
C Corp produces 1,000 units of part CAM per month. The total manufacturing cost of the part are as follows:
Required: If C Corp purchases 1,000 units of part CAM from the
Direct Materials 10,000 outside supplier, its monthly operating income will
increase/decreases by? 4,000 Operating income will decrease by
Direct Labor 5,000 20,000 4,000 because cost will increase.
Variable overhead 5,000
MAKE BUY
1,000 x P30
Fixed overhead 30,000 20,000
Variable cost 30,000
Total manufacturing cost 50,000 Fixed cost 6,000
Opportunity cost 0
An outside supplier has offered to supply the part at
P30 per unit, it is estimated that 20% of the fixed 26,000 30,000
overhead being assigned to part CAM will no longer be Avoidable: BUY
incurred if the company purchases the part from the 4,000
20% of fixed overhead
outside supplier
30,000 x 20% = 6,000
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Summary
Short-term decision Party Relevant cost

Accept or reject a special Potential 1.) Incremental cost – All variable cost;
order seller fixed cost if explicitly said in the problem
2.) Opportunity cost – no excess capacity
 Minimum price
Make or buy a part or Potential 1.) Avoidable cost – All variable cost; fixed
component buyer cost if explicitly said in the problem
2.) Opportunity cost – benefit forgone
 Maximum price
57
58
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3. Keep or drop a
division or
product line
5. Prioritizing the
4. Sell or process
use of constrained
further
resources
59
• Things to watch out for:

 Avoidable costs
Keep or drop a  Financial impact on other division or

product lines
division or
product line
60
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05/02/2022
Problem 6
S Games has 3 major product lines, WII, PS1, and PS2. Due to concerns regarding its profitability, he is
considering dropping PS1, The following are the segmented income statements of the three product
lines:
WII PS1 PS2 Total a. What is the impact of dropping the PS1 on the
Revenues 300,000 200,000 250,000 750,000 overall profits of S? Should S drop the PS1 product
line?
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
b. If PS1 is in some way a complement for PS2 and as
Contribution margin 210,000 100,000 150,000 460,000 a result, closing down PS1 will decrease PS2 sales
(Direct/Traceable fixed costs) (50,000) (60,000) (70,000) (180,000)
by 10% should S drop the PS1 product line?
c. If PS1 is in some way a substitute for PS2 and as a
Segment margin 160,000 40,000 80,000 280,000
result, closing down PS1 will increase PS2 sales by
(Allocation of common costs) (90,000) (60,000) (75,000) (225,000) 10% should S drop the PS1 product line?
Operating income 70,000 (20,000) 5,000 55,000
61
Problem 6
lines:
line?
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
Segment margin 160,000 40,000 80,000 280,000
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PANG-MATALINO
DIFFERENTIAL APPROACH
Segment margin of division dropped
Problem 6 40,000
S Games has 3 major product lines, WII, PS1, and PS2. Due a. What is the impact of dropping the PS1 on the overall
to concerns regarding its profitability, he is considering profits of S? Should S drop the PS1 product line?
dropping PS1, The following are the segmented income 40,000 decrease in profits; KEEP
statements of the three product lines: TOTAL APPROACH KEEP DROP
WII PS1 PS2 Total Sales 750,000 550,000
Revenues 300,000 200,000 250,000 750,000 (Variable cost) (290,000) (190,000)
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
Contribution margin 460,000 360,000
Contribution margin 210,000 100,000 150,000 460,000
(Direct FC) (180,000) (120,000)
Segment margin 280,000 240,000
Segment margin 160,000 40,000 80,000 280,000
(Allocation of common costs) (90,000) (60,000) (75,000) (225,000) (Common costs) (225,000) (225,000)
Operating income 70,000 (20,000) 5,000 55,000 Operating income 55,000 15,000

40,000
63
Problem 6
lines:
line?
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
Segment margin 160,000 40,000 80,000 280,000
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Segment margin of division dropped 40,000
Change in CM of remaining products 15,000
Problem 6 150,000 x 10%
55,000
S Games has 3 major product lines, WII, PS1, and PS2. Due b. If PS1 is in some way a complement for PS2 and as a
to concerns regarding its profitability, he is considering result, closing down PS1 will decrease PS2 sales by 10%
dropping PS1, The following are the segmented income should S drop the PS1 product line? 55,000 decrease in profits;
statements of the three product lines: KEEP
90% TOTAL APPROACH KEEP DROP
WII PS1 PS2 Total
Sales 750,000 525,000
Revenues 300,000 200,000 250,000 750,000
(Variable cost) (290,000) (180,000)
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
(Direct/Traceable fixed costs) (50,000) (60,000) (70,000) (180,000) (Direct FC) (180,000) (120,000)
Segment margin 160,000 40,000 80,000 280,000 Segment margin 280,000 225,000
(Allocation of common costs) (90,000) (60,000) (75,000) (225,000)
(Common costs) (225,000) (225,000)
Operating income 55,000 0
55,000
65
Problem 6
lines:
line?
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
Segment margin 160,000 40,000 80,000 280,000
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Segment margin of division dropped 40,000
Change in CM of remaining products -15,000
Problem 6 150,000 x 10%
25,000
S Games has 3 major product lines, WII, PS1, and PS2. Due c. If PS1 is in some way a substitute for PS2 and as a
to concerns regarding its profitability, he is considering result, closing down PS1 will increase PS2 sales by 10%
dropping PS1, The following are the segmented income should S drop the PS1 product line? 25,000 decrease in profits;
statements of the three product lines: KEEP
110% TOTAL APPROACH KEEP DROP
WII PS1 PS2 Total
Sales 750,000 575,000
Revenues 300,000 200,000 250,000 750,000
(Variable cost) (290,000) (200,000)
(Variable Cost) (90,000) (100,000) (100,000) (290,000)
(Direct/Traceable fixed costs) (50,000) (60,000) (70,000) (180,000) (Direct FC) (180,000) (120,000)
Segment margin 160,000 40,000 80,000 280,000 Segment margin 280,000 255,000
(Allocation of common costs) (90,000) (60,000) (75,000) (225,000)
(Common costs) (225,000) (225,000)
Operating income 55,000 30,000
25,000
67

3. Keep or drop a
division or
product line
5. Prioritizing the
4. Sell or process
use of constrained
further
resources
68
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05/02/2022
• Things to watch out for:

 Incremental costs
Sell or process  Opportunity costs
further
69
Problem 7
SEVETHLANA's cost to manufacture an unfinished unit is P40 (P30 variable and P10 fixed). The selling
price (for the unfinished unit) per unit is P50. The company has unused production capacity and has
determined that units could be finished and sold for P65 with an increase in variable costs of 40%. What
is the additional net income per unit to be gained by finishing the unit? P3, PROCESS FURTHER
Sales (65 - 50) 15

(Variable cost) (30 x 40%) (12)
Contribution margin 3
70
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Problem 8
DAVID Corporation produces two products from a joint process. Information about the two joint products
follows: The joint cost is P85,000. DAVID currently sells
both products at split-off point. If DAVID makes
Product X Product Y the decision which maximizes profit, its profit will
increase by? 16,000
Anticipated production 2,000 lbs 4,000 lbs
Selling price per pound at split-off P30 P16

Sales (40 - 30) 10
Additional processing cost/pound after 15 30 X (Variable cost) (15) (15)
split off (all variable)
Contribution margin (5)
Selling price per pound after further 40 50
processing
Sales (50 - 16) 34
P4 x 4,000 lbs = Profit 16,000 Y (Variable cost) (30) (30)
71
Problem 9
PAULA & JHENNE Inc. has 24,000 defective units of a product that cost P8 per unit to manufacture, and can
be sold for P4 per unit. These units can be reworked for P2 per unit and sold at their full price of P12 each.
If PAULA & JHENNE Inc. reworks the defective units, how much incremental net income will result?
144,000
Sales (12 - 4) 8
(Variable cost) (2) (2)
P6 x 24,000 units = Profit 144,000
72
36
05/02/2022

3. Keep or drop a
division or
product line
5. Prioritizing the
4. Sell or process
use of constrained
further
resources
73
• Additional profits per use of

constrained resources.
Prioritizing the
use of
constrained
resources
74
37
05/02/2022
Problem 10
FABREA Inc. produces three products with the following costs and selling prices:
FATIMA FAYE FLORES a. In what order should the three

products be produced if neither the
Selling price per unit P16 P21 P21 direct labor hours nor the machine hours
are the company's production constraint?
Variable cost per unit 7 11 13
b. In what order should the three
Direct labor hours per 1.00 1.50 2.00 products be produced if the direct labor
unit hours are the company's production
constraint?
Machine hours per unit 4.50 2.00 2.50
c. In what order should the three
products be produced if the machine
hours are the company's production
constraint?
75
Problem 10

constraint?
constraint?
76
38
05/02/2022
Problem 10
FATIMA FAYE FLORES Based on unit contribution margin

Selling price per unit P16 P21 P21
FATIMA FAYE FLORES
Variable cost per unit P7 P11 P13 UCM 9 10 8
Direct labor hours per 1 1.5 2 2ND 3RD
1ST
unit
Machine hours per unit 4.5 2 2.5
a. In what order should the three

direct labor hours nor the machine hours
are the company's production constraint? FAYE, FATIMA, FLORES
77
Problem 10

constraint?
constraint?
78
39
05/02/2022
Problem 10
FATIMA FAYE FLORES Based on direct labor hours

FATIMA FAYE FLORES
Direct labor hours per 1 1.5 2 2
Divide: DLH 1 1.5
unit
UCM per DLH 9 6.67 4
1ST 2ND 3RD
products be produced if the direct labor
constraint? FATIMA, FAYE, FLORES
79
Problem 10

constraint?
constraint?
80
40
05/02/2022
Problem 10
FATIMA FAYE FLORES Based on machine hours

FATIMA FAYE FLORES
Direct labor hours per 1 1.5 2
Divide: MH 4.5 2 2.5
unit
UCM per MH 2 5 3.2
3RD 1ST 2ND
constraint? FAYE, FLORES, FATIMA
81
Thank you!!!
82
41

5 - Relevant Costing and Differential Analysis

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05/02/2022

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

THIS MATERIAL IS INTENDED FOR

Do not share this in any

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

RELEVANT COSTING AND

PROF. GRACE A. PADIERNOS, CPA, CMA

The decision-making process:

PROF. GRACE A. PADIERNOS, CPA, CMA

Decision making is a function of

Role of Management accountant’s role

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

What makes information (esp. costs)

PROF. GRACE A. PADIERNOS, CPA, CMA

• Sunk cost - Cost incurred in the past and

PROF. GRACE A. PADIERNOS, CPA, CMA

Some short-term decisions:

PROF. GRACE A. PADIERNOS, CPA, CMA

Some short-term decisions:

PROF. GRACE A. PADIERNOS, CPA, CMA

• One time order.

Special Order • In many instances, the buyer requests

• What costs to look for?

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

Variable selling cost 300,000 15

Fixed cost 2,000,000 100 Opportunity cost  No excess capacity

FOUNDERS’ brandy sells for P500 per bottle.

PROF. GRACE A. PADIERNOS, CPA, CMA

FOUNDER Corporation sells brandies in 800 ml bottles. In a

FOUNDERS’ brandy sells for P500 per bottle.

PROF. GRACE A. PADIERNOS, CPA, CMA

FOUNDER Corporation sells brandies in 800 ml bottles. In a

PROF. GRACE A. PADIERNOS, CPA, CMA

FOUNDER Corporation sells brandies in 800 ml bottles. In a

What is the relevant cost per unit? P30

Maximum Sales Special order Contribution margin 10,000

(Fixed cost) Not incremental 0

(Opportunity cost) (0)

Some short-term decisions:

PROF. GRACE A. PADIERNOS, CPA, CMA

• A.k.a outsource or produce in-house

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

Variable cost 350,000 35

PROF. GRACE A. PADIERNOS, CPA, CMA

Variable cost 350,000 35

PROF. GRACE A. PADIERNOS, CPA, CMA

Short-term decision Party Relevant cost

PROF. GRACE A. PADIERNOS, CPA, CMA

Some short-term decisions:

PROF. GRACE A. PADIERNOS, CPA, CMA

• Things to watch out for:

Keep or drop a  Financial impact on other division or