Determine opportunity costs, Cost Accounting

Assignment Help:

Determine Opportunity Costs

A company has material B in stock that originally cost Shs. 5000 for the 1000 Kshs in stores. The material is missing over from an old purchase order. The company is still considering employing it on contract X. The alternative course of action to utilizing material on contract X is as:

a) 600 kg could be employed in contract Y instead of buying similar material at Shs. 3 per kg.

b) A further 250 kg could be sold like scrap at Shs. 1 per kg

c) The remainder will have to be disposed at a cost 50 pence per kg

Required

Prepare a summary that shows the opportunity cost of utlizing material B on contract X

Solution

The information may be presented in more than one way. An approach that focuses on each individual cash flow for each alternative is useful where the decision making condition becomes more complex, since it adopts a detailed analysis, that is easy to follow. Alternatively, the net costs and benefits may be summarized for employ in the alternative option decision.

a) Showing all relevant cash flows

Accepted Contract

Reject the contract

 

X

X

Cash in flows

 

 

Scrap sales (250 kg x Shs. 1.00)           

 

250

 

Nil

250

Cash outflows

 

 

Contract Y purchases (600 kg x Shs. 3)

 1800  

-

Disposal cost (150 kg x Shs. .5)

 

  75

 

 1800

  75

Net cash inflow/outflow

(1800)

175

The opportunity cost net outflow if material B is essential on contract X is Shs. 1975 . Utilizing a net costs and benefits summary if material B is used on contract X:

 

Shs.     

Shs.

Benefits

 

    75

Disposal cost avoided

 

 

Less costs

 

 

Contract Y purchases 

1,800  

 

Scrap sales foregone

       250

2,050

Opportunity cost

 

1,975


Related Discussions:- Determine opportunity costs

Explain the respective roles of the securities, Explain the respective role...

Explain the respective roles of the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) in the setting of accounting standards?

Absorbtion of overheads, interaction with an expert/cost accountant to kno...

interaction with an expert/cost accountant to know the overhead absorbtion policies and procedure followed

Types of standard costs, Types of Standard Costs The standard cost set...

Types of Standard Costs The standard cost set could be ideal, basic, attainable or current. i. Basic Standards: These are long term standards that would keep unchanged ov

Purposes of overhead cost analysis, Purposes of Overhead Cost Analysis ...

Purposes of Overhead Cost Analysis There are a number of situations whether the analysis of overhead costs will assist in the satisfactory evaluation of the relevant cost data

Prepare the bank reconciliation statement, As the Junior Bank Clerk of a bu...

As the Junior Bank Clerk of a business, one of your monthly tasks is to prepare the bank reconciliation statement. At the month ending 31 January 2012, the bank statement has be

Supplies and prepaid expenses, Inventory, Supplies and Prepaid Expenses ...

Inventory, Supplies and Prepaid Expenses You can well understand the requirements for carrying inventory. So as to  carry  on operations unhindered we require to have sufficien

Role of cost accounting in organization, Role of Cost Accounting in Organiz...

Role of Cost Accounting in Organization Like part of their jobs, such cost accountants interpret results, and then report them to management and give analysis such assist deci

Importance of cost classification, Importance of Cost Classification A...

Importance of Cost Classification Analysis of cost behaviour is significant to all organizations for effective management. It is since many organizations have a unique cost st

Determine the ratio of the sales, 1) Jodie received a $2000 college entranc...

1) Jodie received a $2000 college entrance scholarship. Nine month later Brian was awarded a $2100 academic proficiency scholarship for his outstanding grades in the first year of

Contract account, i want to understand everything about contract account

i want to understand everything about contract account

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd