Relevant Costs

In: Business and Management

Submitted By annedi
Words 2825
Pages 12
Management must maximize sales of the product with the highest contribution margin per unit. Do you agree? Explain.

2. Managers must choose the alternative that maximizes operating income. Do you agree? Explain.

3. Broadway Printers operates a printing press with a monthly capacity of 2,000 machine-hours. Broadway has two main customers, Taylo Corporation and Kello Corporation. Data on each customer for January follow:
| | | | |
| |Taylo Corp. |Kello Corp. |T o t a l |
|Re | | | |
|Revenues |PhP 120,000 |PhP 80,000 |PhP 200,000 |
|Variable costs |42,000 |48,000 |90,000 |
|Fixed costs (allocated based on revenues) |60,000 |40,000 |100,000 |
|Total operating costs |102,000 |88,000 |190,000 |
|Operating income/(loss) |PhP 18,000 |PhP ( 8,000) |PhP 10,000 |
|Machine-hours required |1,500 hours |500 hours |2,000 hours |

The following items refer only to the preceding data. There is no connection between the items.

a. Should Broadway drop the Kello Corporation business, assuming that dropping it would decrease its total fixed costs by 20…...

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