Think about what this means. Home current Explore.
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It is useful when you want to understand a Whether to process the product further or not b Whether to accept an additional order at a.
Mas differential costing retain or replace machine. The company has the opportunity to replace. There are a number of factors to take into consideration when deciding whether to repair or replace equipment which weve broken down below. Costs associated with buying and making is to be compared.
Differential cost is the cost difference of one plan or procedure when compared to another. Implication 1 in a repair versus replace scenario there is virtually no practical maintenance cost for the old one where the purchase of a new one is a sound financial decision. Differential Costing - Finance MCQ Questions and answers.
Relevant costing focuses on just that and ignores other costs which do not affect the future cash flows. The existing machine has a current market value of P80000. Far Eastern University Manila.
Differential costing involves the study of difference in costs between two alternatives and hence it is the study of these differences and not the absolute items of cost which is important. MAS 05 - DIFFERENTIAL COSTINGdoc. Ongoing maintenance costs over the remaining life of the equipment.
For example if a company determines that the annual labor cost of US80000 machine hours was US4000000 while the annual labor cost of US70000 machine hours was US3800000. DIFFERENTIAL COST ANALYSIS RETAIN OR REPLACE AN ASSETpdf. JKL Company is considering replacing a machine with a book value of P100000 a remaining useful life of 4 years and annual straight-line depreciation of P25000.
F fixed cost. A chain store has offered P0 per unit for 400 units of Q. Moreover elements of cost which remain the same or identical for the alternatives are not taken into consideration.
M a 2 -a 1 Thus in above illustration where marginal cost at 70 level of activity is Rs. If the volume is expected to increase then automatic machine may be preferred-as it will avoid the replacement cost of semi-automatic machine by automatic machine in future and will also reduce the cost of. Variable costs are P0 and avoidable fixed costs are P400.
Capacity is 5000 units. Mas Reviewer - Relevant Costing eljq8572xw41. Great Value Company is planning to purchase a new machine costing P50000 with freight and installation costs amounting to P1500.
Implication 2 where a high initial rebuild cost is concerned the desired ROI determines the threshold limit for rebuild costs. The Mabuhay Corporation plans to acquire a new equipment costing P1340000 to replace the equipment that is now being used. We are supposedly comparing apples-to-apples.
Plantation cost represents the amortization of initial cost incurred in growing orange trees over its fruiting life 10 years. 49000 x 2070 Rs. 400 240 60.
Buchanan Company currently sells 4000 units of product Q for P1 each. Hence Differential Cost ie y 2 y 1 ma 2 F- ma 1 F ADVERTISEMENTS. Costs that a company must incur to perform an activity at a given level but will not be incurred if a company reduces or discontinues the activity C.
The differential costing uses the accounting information and it can only be part of accounting system. 1 A facility the installed capacity of which is 100000 units has budgeted 70 level of activity as Materials Rs 105000 Wages Rs 140000 Variable overheads Rs 70000 and Fixed overheads Rs 20000. 6 - Short-term Decisions or Relevant Costingpdf.
The differential costing can be applied in varied alternative proposals hence the scope is wider. In this lesson well see how differential costs are used as well as look at an example. Production is now proposed at 80000 units.
R cost m replacement 50. 6 - Short-term Decisions or Relevant Costingpdf. Sell a joint product at split-off or process it further.
The machine will need to be replaced after four years at the estimated cost of 100000. An objective measure of the cost of a business decision is the extent of cash outflows that shall result from its implementation. Instead a company should consider relevant costs or in this case all of those financial factors that actually matter when making the decision to repair retain or replace equipment.
In this case the 50 Rule says to replace. EAC 5000PA 15 12 150FA 15 9AF 15 12 100PG 15 7PF 15 5AP 15 12 1103. View DIFFERENTIAL COST ANALYSIS RETAIN OR REPLACE AN ASSETpdf from MAS 01 at Far Eastern University Manila.
A hospital is considering purchasing a new 40000 diagnostic machine that will have no salvage value after installation as. If repair costs 240 and an equivalently used replacement is 400 repair is 60 of the replacement cost. In addition to the obvious replacement cost for a new piece of equipment there are several other factors to take into consideration when deciding whether to repair or replace a piece of equipment.
The marginal costing system can be included into accounting system. Differential cost is a technique of decision-making in which the cost between various alternatives is compared and contrasted with choosing between the most competing alternative. Sunk costs are A.
49000 the differential cost between 90 and 70 level of activity will be. MAS 08 - CAPITAL BUDGETINGdocx. The impact any repair would have on productivity and quality.
Create an asset management policy for your business. The replacement machine would cost P160000 have a 4-year useful life save P50000 per year in cash operating costs. The decision to repair or replace equipment should be based on minimizing the total cost of the equipment to the business over its remaining lifetime.
The scope of marginal costing is comparatively lesser. Then the differential cost or additional cost of an additional US10000 machine hours. New orange trees will be planted after four years to replace the old trees at an expected cost of 50000.
Differential costing technique can be used for solving make or buy problem. Costs that increase due to a higher volume of activity or the performance of an additional activity B. Differential cost analysis or differential costing is a special technique to help management in decision-making which shows how costs and revenues would be differ under different alternative courses of action.
Far Eastern University Manila MAS 01. Relevant costing attempts to determine the objective cost of a business decision.
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