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Chapter 8 (Differential Cost Analysis) : Pagatpat, Aischelle Mhae R

The document discusses differential cost analysis and relevant cost approaches for various business decisions: 1) Make-or-buy decisions consider relevant manufacturing costs versus purchasing from outside. 2) Accepting a special order requires analyzing if additional fixed costs are covered by extra revenue. 3) Shutdown analysis calculates total shutdown costs versus ongoing savings from reduced operations.

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Elle
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161 views3 pages

Chapter 8 (Differential Cost Analysis) : Pagatpat, Aischelle Mhae R

The document discusses differential cost analysis and relevant cost approaches for various business decisions: 1) Make-or-buy decisions consider relevant manufacturing costs versus purchasing from outside. 2) Accepting a special order requires analyzing if additional fixed costs are covered by extra revenue. 3) Shutdown analysis calculates total shutdown costs versus ongoing savings from reduced operations.

Uploaded by

Elle
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 8 (DIFFERENTIAL COST ANALYSIS)

▲ ILLUSTRATIONS
• Make or Buy

Relevant cost approach

Relevant cost approach

Total cost approach

Total cost approach


What if?
 Annual production and sales is 2,000 units
 A special order for 500 units is accepted at P45 per unit with no
change in variable costs
 500 units of normal sales is to be dropped to accommodate the
special order
 Additional fixed manufacturing cost of P5,000 will be incurred due
to the special order

Relevant cost approach

• Accept or Reject

Total cost approach

• Eliminate, Retain or Add


Pagatpat, Aischelle Mhae R.
.

Step 1. Compute total shutdown cost


Relevant cost approach

Step 2. Compute shutdown savings


Total cost approach

• Shutdown or Continue Operations

Step 3. Calculate shut down point based on savings

Answer

• Sell as is or Process Further

Pagatpat, Aischelle Mhae R.


.

2.

Relevant cost approach

Total cost approach

• Keep or Replace Equipment

• Sales Mix at Limited Resources

1.

Pagatpat, Aischelle Mhae R.

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