Managerial Accounting: An Introduction To Concepts, Methods, And Uses. Chapter 8 Differential Cost Analysis for Production Decisions. Maher, Stickney and Weil. Learning Objectives (Slide 1 of 2). Explain why businesses apply differential analysis to product choice decisions.
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Differential Cost Analysis
for Production Decisions
Maher, Stickney and Weil
Unit Selling Price $ 30 $ 30
Sales Volume 800/mth. 800/mth.
Unit Variable Costs $ 11 $ 22
Purchased Ingredients $ 12 $ 0
Total Fixed Costs $3,840 $4,800
__Buy Make Difference
Revenue $24,000 $24,000 -0-
-Produce & Sell 8,800 17,600 $(8,800)
-Costs of Goods Bought 9,600 -0- 9,600
Contribution Margin $ 5,600 $ 6,400 $( 800)
Less Fixed Costs 3,8404,800 (960)
Operating Profit $ 1,760 $ 1,600 $ 160
Where: Q =
N = optimal number of orders
Q = economic order quantity
D = period demand
K0=order or setup cost
Kc= cost of carrying one unit in inventory
Colorado State University-Pueblo