PROBLEM 1. Relevant Cost Analysis PT Sarjana manufactures two environmentally friendly products labelled NoCovid (N) and YesVaccine (Y) which have become the trademark of this company. Due to the detrimental impact of the pandemic, the company is considering dropping product Y. To discuss the possibility further, the Accounting Manager is given the opportunity to present his view on this matter using accounting data and predictions.

Below are the considerations presented by the manager: The sales of product N are predicted to increase by 40% if the plan of dropping Y is executed. Dropping product Y will save monthly equipment rental amounting $100 per month; while the other existing equipment can be used to produce additional units of product N. The company will have to say goodbye due to work termination to one employee with salary $200 per month if the production of Y is dropped. Allocation of other fixed costs will continue despite the options made by the company.

The Accounting Manager has also prepared a condensed, budgeted monthly income statement for both products to facilitate further discussions as follows.

Required: 1. Prepare the relevant revenue and relevant cost analysis using the incremental approach to help company determine the financial effect of dropping product Y. 2. What would you suggest to the company based on the analysis?

Sales Product N $10,000 2,500 2,000 Direct materials Direct labor Product Y $ 8,000 2,000 1,200 2,600 2,100 $ 100 Total $18,000 4,500 3,200 2,900 3,100 $ 4,300 300 Equipment rental Other allocated overhead 1,000 $4,200 Operating income