## Evaluate the relevant cost, Cost Accounting

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Question

PART A

A company manufactures a single product and the data concerning the product is as follows:

- Sales price of \$10
- Marginal cost of \$6.
- Fixed costs are \$60,000 p.a.

Determine

a. Number of units to break-even.

b. Sales at break-even point.

c. Contribution/sales (C/S) ratio

d. What number of units will need to be sold to achieve a profit of \$ 20,000 p.a

e. What level of sales will achieve a profit of \$ 20,000 p.a

f. Because of increasing costs the marginal cost is expected to rise to \$ 6.50 per unit and fixed costs to \$ 70,000. If the selling price cannot be increased what can be the number of units required to maintain a profit of \$ 20,000 p.a?

PART B

(i) Your company regularly uses material X and currently has in inventory 500 kgs for which it paid \$ 1,500 two weeks ago. If this were to be sold as raw material, it could be sold today for \$ 2.00 per kg. You are aware that the material can be bought on the open market for \$ 3.25 per kg, but it must be purchased in quantities of 1,000 kgs.

Required:

Evaluate the relevant cost of 600 kgs of material X to be used in a job for a customer.

(ii) In the short term decision-making context, which one of the subsequent would be a relevant cost:

- Specific development costs already incurred.

- The cost of special material which will be purchased.

- The original cost of raw materials currently in inventory which will be used on the project.

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