relevant information to the context of operation decision
1 law of production payroll processing
2 buy or rent whether to process inhouse or ou
3 outsource or inhouse situation 1
4 keep or replace exeisting in house
5 hire off a particular loss making decision
step 1: the decision under consideration
step 2: which are the information or dat
relevant
will not be relevant
step 3: impact of each item which are re
step 4: overall financial imapact of the d
step 5: recommendation
payroll processing
ether to process inhouse or outsource
situation 2
outsource
e decision under consideration
hich are the information or data relevant to the decision
what will change which data can undergo changes
what will not vchange
pact of each item which are relevant (situation 1 or situation 2)
erall financial imapact of the decision ((net benefit (+) accept) or net go (-) reject)
commendation
payroll processing under financial dept
outsouce 1 decision under considera
no of employees 1000 offer@1600 per employee
cfo 50 not relevant
payroll incharge 10 relevant
supervisors 5 relevant
cost of stationary 2 relevant
other processing cost 1 relevant
cost 68
in assuming whether cos
1 if it is variable will it ch
2 if is fixed
avoidable
relevant
decision under consideration: outsourcing of payroll
in assuming whether cost is relevant or not
1 if it is variable will it change in theis senareio
2 if is fixed
unavoidable
unrelevant
whether to keep or replace
current situation situation with new machine
Units produced and sold 5,000.00 5,000.00
selling price per unit 40.00 40.00
sales 200,000.00 200,000.00
direct material cost per unit 14 70,000.00 70,000.00
direct labour cost per unit 8,5 40,000.00 25,000.00
variable cost per unit 2 10,000.00 10,000.00
fixed cost (other than machine rental) 62,000.00 62,000.00
fixed cost rental of new machine - 3,000.00
total costing 182,000.00 170,000.00
net benefit accept the offer 12,000.00
net profit 18,000.00 30,000.00
relevant or not revant
not relevant
not relevant
not relevant
not relevant
relevant
not relevant
not relevant
not relevant
1 relevant
2 relevant Drugs Cosmetics
3 not relevant Sales 125,000.00 75,000.00
4 not relevant Variable expenses 50,000.00 25,000.00
5 not relevant
6 relevant Contribution 75,000.00 50,000.00
7 not relevant Fixed Expenses
Salaries 29,500.00 12,500.00
Advertising 1,000.00 7,500.00
Utilities 500.00 500.00
Depreciation –fixtures 1,000.00 2,000.00
Rent 10,000.00 6,000.00
Insurance 2,000.00 500.00
General Administrative exp 15,000.00 9,000.00
Total Fixed exp 59,000.00 38,000.00
Net operating income 16,000.00 12,000.00
after adjustment
Drugs Cosmetics
Sales 125,000.00 75,000.00
Variable expenses 50,000.00 25,000.00
Contribution 75,000.00 50,000.00
Fixed Expenses
Salaries 29,500.00 12,500.00
Advertising 1,000.00 7,500.00
Utilities 500.00 500.00
Depreciation –fixtures 1,000.00 2,000.00
Rent 10,000.00 6,000.00
Insurance 2,000.00 500.00
General Administrative exp 15,000.00 9,000.00
Total Fixed exp 59,000.00 38,000.00
Net operating income 16,000.00 12,000.00
net benefit 41000 accept the offer
Housewares Total
50,000.00 250,000.00
30,000.00 105,000.00
20,000.00 145,000.00
8,000.00 50,000.00 relevant
6,500.00 15,000.00 relevant
1,000.00 2,000.00 not relevant
2,000.00 5,000.00 not relevant
4,000.00 20,000.00 not relevant
500.00 3,000.00 relevant
6,000.00 30,000.00 relevant
28,000.00 125,000.00
-8,000.00 20,000.00
Housewares Total
50,000.00 250,000.00
30,000.00 105,000.00
20,000.00 145,000.00
- 42,000.00
- 8,500.00
1,000.00 2,000.00
2,000.00 5,000.00
4,000.00 20,000.00
- 2,500.00
- 24,000.00
7,000.00 104,000.00
13,000.00 41,000.00
accept the offer
8000 per unit amount
Direct Materials 6 48000 relevant
Direct Labor 4 32000 relevant
Variable overhead 1 8000 relevant
Supervisor’s salary 3 24000 relevant
Depreciation of special equipment 2 16000 not relevant
Allocated general overhead 5 40000 not relevant
Total Cost 21 168000
after adjust ment
Direct Materials 6 0
Direct Labor 4 0
Variable overhead 1 0
Supervisor’s salary 3 0
Depreciation of special equipment 2 16000
Allocated general overhead 5 40000
Total Cost 21 56000
cost of buying 19 152000
total cost after buying 208000
net loss -40000 reject the offer
20000 per unit amount
Direct materials 15 300,000.00 relevant
Direct labor 12 240,000.00 relevant
Variable factory overhead 20 400,000.00 relevant
Unavoidable fixed factory overhead 18 360,000.00 not relevant
total cost 65 1,300,000.00
buying from the outside 940000
Unavoidable fixed factory overhead 18 360,000.00
total buying cost 1,300,000.00
