ACTG2020_Week5 2014 Ch12CMD (1)

Data about the companys annual sales and costs with

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Unformatted text preview: he new machine are: S ales (5,000 units @ $40 per unit) Less variable expenses: Direct materials (5,000 units @ $14 per unit) Direct labour (5,000 units @ $8 and $5 per unit) Variable overhead (5,000 units @ $2 per unit) Total variable expenses Contribution margin Less fixed expense: Other Rent on new machine Total fixed expenses Operating income Current Situation $ 200,000 S ituation W ith New Machine $ 200,000 Differential Costs and Benefits - 70,000 40,000 10,000 120,000 80,000 70,000 25,000 10,000 105,000 95,000 15,000 15,000 62,000 62,000 18,000 62,000 3,000 65,000 30,000 (3,000) (3,000) 12,000 $ $ LO 1 Total and Differential Cost Approaches Using the differential approach is desirable for two reasons: 1. Only rarely will enough information be available to prepare detailed income statements for both alternatives. 2. Mingling irrelevant costs with relevant costs may cause confusion and distract attention away from the information that is really critical. LO 1 Adding/Dropping Segments One of the most important decisions managers make is...
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This note was uploaded on 03/28/2014 for the course ACTG 2020 taught by Professor Lizfarrel during the Spring '11 term at York University.

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