Page 100 - DCOM206_COST_ACCOUNTING_II

Annual Depreciation Unit 5: Differential Costing
New equipment 3,00,000
Old equipment 1,00,000 70,00,000
Notes
Interest on capital - 4,40,000
Wages 1,00,000 1,20,000
Repairs and maintenance 20,000 52,000
Consumables 3,20,000 4,80,000
Power 1,20,000 1,50,000
Allocation of fixed expense 60,000 80,000
7,20,000 16,92,000
Hours run per annum 2400 2400
Operating cost per hour (`) 300 705
Output per hour (units) 1200 3000
Operating cost per 1000 units (`) 250 2356

Therefore, there is net saving in cost of ` 15 per 1000 units.
Problem 5:
Acceptance of rejection of an export order: MX ltd. Having an installed capacity of 1,00,000 units
of product is currently operating at 70% utilisation. At current levels of input prices the FOB unit
cost (after credit for applicable export incentives) works out as follows:
Capacity Utilisation FOB unit cost (`)
70 97
80 92
90 87
100 82

The company has received three foreign offers from different sources as under:
Source A 5,000 units @ ` 54 per unit FOB

Source B 10,000 units @ ` 52 per unit FOB
Source C 10,000 units @ ` 51 per unit FOB
Advise the company as to whether any or all the export orders should be accepted or not.
Solution:
Statement Showing Differential Cost

Capacity Production FOB unit Installed total Differential Per unit differential
(units) cost (`) cost cost cost
70 70,000 97 67,90,000 - -
80 80,000 92 73,60,000 5,70,000 57
90 90,000 87 78,30,000 4,70,000 47
100 1,00,000 82 82,00,000 3,70,000 37

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