Week 3 formulas (Relevant costing)

Question 1

make or buy decision rule equation ?

Answer 1

make or buy decision rule =
avoidable costs + opportunity costs < or > outside purchase price

Question 2

keep or drop decision rule equation ?

Answer 2

keep or drop decision rule =
avoidable costs + opportunity costs < or > lost contribution margin

Question 3

special order decision rule equation ?

Answer 3

special order decision rule =
actual selling price of special order < or > minimum accepting selling price of special order

Question 4

minimum acceptable selling price of special order equation ?

Answer 4

minimum acceptable selling price of special order =
variable costs per unit of the special order + contribution margin lost from ‘given up’ regular sales

Question 5

where contribution margin ‘lost’ is equal to equation ?

Answer 5

where contribution margin ‘lost’ is equal to =
cm per unit of regular sales * units of regular sales given up / units of special order

Question 6

process further decision rule equation ?

Answer 6

process further decision rule =
(sales value from further processing - additional process costs > sales value at the split off point

Question 7

contribution margin per unit of scarce resource equation ?

Answer 7

contribution margin per unit of scarce resource =
contribution margin per unit / scarce resource needs per unit