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    Activity 7 Relevant Costing

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    Bernadette Shine Cabaya Calawigan
    Thalassines Kataskeves, S.A. should continue its bilge pump product line as discontinuing it would result in a $150,000 loss due to avoidable fixed costs exceeding contribution margin. For Wexpro, Inc., processing product X15 further would be advantageous as an additional $11,500 gain could be earned beyond the split-off point sale price. Delta Company would increase its net income by $39,000 if it accepts a special order of 15,000 units due to revenues exceeding variable costs of production and sales.

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    Activity 7 Relevant Costing

    Uploaded by

    Bernadette Shine Cabaya Calawigan
    21 views2 pages
    Thalassines Kataskeves, S.A. should continue its bilge pump product line as discontinuing it would result in a $150,000 loss due to avoidable fixed costs exceeding contribution margin. For Wexpro, Inc., processing product X15 further would be advantageous as an additional $11,500 gain could be earned beyond the split-off point sale price. Delta Company would increase its net income by $39,000 if it accepts a special order of 15,000 units due to revenues exceeding variable costs of production and sales.

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    Activity 7; Relevant Costing

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    Thalassines Kataskeves, S.A. should continue its bilge pump product line as discontinuing it would result in a $150,000 loss due to avoidable fixed costs exceeding contribution margin. For Wexpro, Inc., processing product X15 further would be advantageous as an additional $11,500 gain could be earned beyond the split-off point sale price. Delta Company would increase its net income by $39,000 if it accepts a special order of 15,000 units due to revenues exceeding variable costs of production and sales.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    21 views2 pages

    Activity 7 Relevant Costing

    Uploaded by

    Bernadette Shine Cabaya Calawigan
    Thalassines Kataskeves, S.A. should continue its bilge pump product line as discontinuing it would result in a $150,000 loss due to avoidable fixed costs exceeding contribution margin. For Wexpro, Inc., processing product X15 further would be advantageous as an additional $11,500 gain could be earned beyond the split-off point sale price. Delta Company would increase its net income by $39,000 if it accepts a special order of 15,000 units due to revenues exceeding variable costs of production and sales.

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    Thalassines Kataskeves, S.A.

    , of Greece

    (Avoidable Fixed Cost)


    Savings - Fixed Costs = Advertising + Salary of Product-Line + Insurance on Inventory
    = 270,000 + 8,000
    = 310,000

    Financial Advantage (Disadvantage)


    to discontinue bilge pump = Avoidable Fixed Costs – Contribution Margin

    = 310,000 – 460,000
    = (150,000)

    Recommendation: I would recommend that the Bilge pump product line must be
    continued

    Wexpro, Inc
    At Split-off Point of $9
    Sales = 7,000 units x 9
    = 63,000
    Costs of materials: 15,000
    Expected Gain : 48,000

    At Split-off Point of $12


    Sales = 7,000 units x 12
    = 84,000
    Cost of Materials: 15,000
    Further Processed Cost: 9,500
    Expected Income: 59,500
    Allocated = ¼ of material and processing cost
    = ¼ (60,000)
    = 15,000
    Recommendation: It is an advantage for Wexpro. Inc, if product X15 must be processed
    further, since an 11,500 is expected to be gained only if it was sold after split-off.

    Delta Company

    Sales: 15,000 x 14 per unit 210,000.00


    Less:
    Direct Materials (15,000 x 5.10) 76,000.00
    Direct Labor (15,000 x 3.80) 57,000.00
    Variable Manufacturing Overhead (15,000 x 1.00) 15,000.00
    Variable Selling and Administrative (15,000 x 1.50) 22,500.00
    Increase in Net Income: 39,000.00
     If the order is accepted, there will be an increase of net income by
    39,000.00

    2. At 1.50-unit cost of Variable Selling and Administrative Expense is relevant for


    establishing a minimum selling price since the products are produced already, all
    variable costs other than selling is considered to be spent and unreconcilable. Fixed
    costs are irrelevant since the special order will nit change the company’s fixed costs.

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