Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Biden Company sells two items, product A and product B. The company is considering dropping product B. Dropping product B will allow the company to

image text in transcribed
Biden Company sells two items, product A and product B. The company is considering dropping product B. Dropping product B will allow the company to avoid its monthly equipment rental costing RM200 per month. One employee earning RM500 per month can be terminated if product B production is dropped. Biden's other allocated overhead costs will continue regardless of the decision made. A condensed, budgeted monthly income statement with both products follows: Product A Product B Total Sales RM10,000 RM8,000 RM18,000 Direct materials 2,500 2,000 4,500 Direct labor 2,000 1,200 3,200 Equipment rental 300 2,600 2,900 Other allocated overhead 1.000 2,100 3.100 Operating income RM4,200 RM100 RM4,300 Required: (Show all calculations) a) Prepare a statement showing the effect of dropping the product B, assuming the released facilities remain idle? (You can use Excel spreadsheet and paste the working in the answer box below) (7 marks) b) Using your results from (a) advice Biden Company whether product B should be dropped from the product range, giving reasons for your decision. (3 marks) c) Briefly discuss the differences between relevant and irrelevant costs (give an example), and its impact in the short-term decision-making

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Process Safety Management Risk Management Planning Auditing Handbook A Checklist Approach

Authors: David Einolf, Luverna Menghini

1st Edition

086587686X, 978-0865876866

More Books

Students also viewed these Accounting questions