Requirement A 17 marks
0 Technical report is a sunk cost and therefore is irrelevant
60,000 Metallic sheets are used on a regular basis therefore the relevant cost is
replacement cost
500 Logo development cost represent a future, incremental CF and is
relevant
16,000 Company will have to purchased 1000l for job as this ink has not been
used before assume the 125litres surplus will be of no use.
825
162
880
Variable cost of machine print time
Additional maintenance as a direct consequence of the job
Opportunity cost of printing machine time represents a relevant cost to
taking this job
0 Printing labour – is sufficient capacity => 0 incremental cost
264 Despatch cost represents an incremental CF
0 Allocation of FC simply represent an allocation of costs that will
happen regardless of this job
78,631
Requirement B 5 marks
Where one course of action requires that an alternative course of action is given up, the
financial benefits that are foregone or sacrificed are known as an opportunity cost.
Opportunity costs will only arise when resources have alternative uses. In this case:
The 55 hours of machine time that will be used by the job could be sold on to a
local printing company at €16 per hour thus representing an opportunity cost.
Part B 8 marks (Solution may be prepared in several different ways)
Decrease in sales revenue Lose Industrial
revenue
300,000
Expected decrease in expenses:
Variable manufacturing expenses All avoidable 38,000
Fixed manufacturing expenses One third is
avoidable
70,000
Variable marketing and admin
expenses
All avoidable 66,000
Expected decrease in total expenses 174,000
Expected decrease in operating
income
126,000
Note fixed marketing and admin expenses will be unchanged and therefore are not
included Decision: Do not drop Industrial product line.
