HANIFAH AL FITRI SALSABILA

008202000030
ADVANCE COST ACCOUNTING
Session 9: Costing decision under uncertainty
 ABC Make or Buy Analysis : Talmage Company
Activity Make
Using Materials 50,000
Using direct labor 200,000
Providing Supervision 300,000
Moving materials 394,000
Providing power 90,000
Inspecting products 301,000
Setting up equipment 600,000
Acquiring Part 34 B -
1,935,000

Functional Based Make-or-Buy Analysis : Talmage Company

Activity Make
Using Materials 50,000
Using direct labor 200,000
Providing Supervision 300,000
Providing power 90,000
Acquiring Part 34 B -
640,000

ABC Segmented Income Statement

Seat Covers
Sales 950,000
Less : Unit Level Variable Expenses:
Direct Materials (300,000)
Direct labor (210,000)
Maintenance (90,000)
Power (35,000)
Commissions (30,000)
Contribution Margin 285,000
Less Traceable Expesense :
Adverstising, direct fixed (30,000)
Supervision, direct fixed (50,000)
Machine depreciation, traceable fixed (50,000)
Inspecting product, non unit variable (20,000)
Inspecting product, traceable fixed (80,000)
Materials handling , non unit variable (10,000)
Materials handling, traceable fixed (70,000)
Customer service, traceable fixed (45,000)
Sales administration, traceable fixed (50,000)
 (120,000)

ABC Keep-or-Drop Analysis

Keep Alternative
Contribution Margin 285,000
Adverstising, direct fixed (50,000)
Supervision, direct fixed (30,000)
Inspecting product, non unit variable (20,000)
Inspecting product, traceable fixed (80,000)
Inspecting product,unused capacity (40,000)
Materials handling , non unit variable (10,000)
Materials handling, traceable fixed (70,000)
Customer service, traceable fixed (45,000)
(60,000)

Expected total Cost

Of Producing 250,000 units
in 2,000 batches Next Year
Direct Materials ($36/unit x 250,000 unit) 9,000,000
Direct Manufacturing labor
($10 per unit x 250,000 units) 2,500,000
Variable manuf overhead cost of power and
utilities ( $6 x 250,000 units) 1,500,000
Mixed batch lavel manuf overhead cost
of materials handling and setup
($750,000+ $625*2000 batches) 2,000,000
Fixed manuf ovehead costs of plant lease
,insurance and administration 3,000,000
Total Manufacturing cost 18,000,000

Total Relevant Costs

Relevant Items Make
Outside purchase of parts ( $64 x 250,000 units)
Direct Materials 9,000,000
Direct Manufacturing Labor 2,500,000
Variable Manufacturing overhead 1,500,000
Mixed ( variable and fixed materials -
handling and setup overhead 2,000,000
Total relevant costs 15,000,000

Difference in favor of making

DVD players 1,000,000
mage Company
Buy Differential Cost
- 50,000
- 200,000
240,000 60,000
345,000 49,000
- 90,000
263,000 38,000
540,000 60,000
475,000 (475,000)
1,863,000 72,000

: Talmage Company
Buy Differential Cost
- 50,000
- 200,000
240,000 60,000
- 90,000
475,000 (475,000)
715,000 (75,000)

atement
Floors Mats Total
1,680,000 2,630,000
-
(400,000) (700,000)
(210,000) (420,000)
(90,000) (180,000)
(25,000) (60,000)
(40,000) (70,000)
915,000 1,200,000

(20,000) (50,000)
(50,000) (100,000)
(50,000) (100,000)
(10,000) (30,000)
(50,000) (130,000)
(14,000) (24,000)
(26,000) (96,000)
(75,000) (120,000)
(30,000) (80,000)
 590,000 470,000

Drop Alternative
-
-
-
-
-
-
-
-
(15,000)
15,000

Expected cost per unit

36

10

12
72

al Relevant Costs Relevant Cost

Buy Make Buy
16,000,000 64
36
10
6

8
16,000,000 60 64

4
 PROBLEM 11-17

1 Make
Revelant Cost
Variable costs 190
Avoidable fixed costs 10
Purchase price
Unit Relevant Cost 200

2 Keep
Cash operating costs ( 3 Years) 52,500
Current disposal value of old machine
Cost of new machine
Total Relevant Costs 52,500

PROBLEM 11-20

1 Manufacturing
Costs of CMCB
1
Direct materials ($170 x 10,000) 1,700,000
Direct manufacturing labor ( $45 x 10,000) 450,000
Variable batch manufacturing cost ($1,500 x 80) 120,000
Fixed manufacturing cost :
Avoidable fixed manufacturing costs 320,000
Unavoidable fixed manufacturing costs 800,000
Total Manufacturing Costs 3,390,000

2 Total Incremental Costs

Incremental Items
Make
Cost of purchasing CMCBs From Minton
Direct Materials 1,700,000
Direct Manufacturing Labor 450,000
Variable batch manufactruing costs 120,000
Avoidable fixed manufacturing costs 320,000
2,590,000
Difference in Favor Making 410,000

Choices for Svenson

Relevant Items Make CMCBs and
Do Not Make CB3s
TOTAL ALTERNATIVES APPROACH TO MAKE-
OR-BUY DESICISONS
Total Incremental Cost of making/buying CMCBs
( from requirement 2) 2,590,000

Because incremental future costs exceed

incremental future revenues from CB3s, Svenson
will make zero CB3s even if it buys CMCBs 0
from Minton
Total Relevant Costs 2,590,000
 Buy

260
260

Replace Difference
46,500 6,000
(2,200) 2,200
9,000 (9,000)
53,300 (800)

Manufacturing
Cost per Unit
2 = 1/ 10,000
170
45
12

32
80
339

Total Incremental Costs Perunit Incremental Costs

Buy Make Buy
3,000,000 300
170
45
12
32
3,000,000 259 300
 41

Choices for Svenson

Buy CMCBs and Make
CB3s, If Profitable

3,000,000

3,000,000