ch12-AFM102s2012

Managerial accounting 12 3 12 4 total and

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Unformatted text preview: Managerial Accounting 12-3 12-4 Total and Differential Cost Approaches The management of a company is considering a new labour saving machine that rents for $3,000 per year. Data about the company’s annual sales and costs with and without the 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 Managerial Accounting 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 $ $ 12-5 Total and Differential Cost Approaches As you can see, the only costs that differ between the alternatives are the direct labour costs savings and the increase in fixed rental costs. Sales (5,000 u...
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This test prep was uploaded on 04/09/2014 for the course AFM 102 at Waterloo.

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