Solution-Identify the irrelevant costs

Identify the irrelevant costs

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Reference no: EM133134130

Question - A manufacturing company can manufacture any one of three different products A, B or C with the equipment currently installed in one of the divisions. The annual depreciation of the equipment is Ksh 32,400 and the annual cost to operate the equipment, regardless of which product is manufactured is Ksh 7,200. Product A is expected to give sales revenue of Ksh 176,000 per year with additional costs of production amounting to Ksh 39,000. Product B will yield sales revenue of Ksh 130,000 per year with additional costs of production amounting to Ksh 38,000. Product C will yield sales revenue of Ksh 314,000 per year with additional costs of production amounting to Ksh 230,000.

Required -

1. Which of the three products offers the best profit potential based on the information given?

2. Identify the irrelevant costs

3. What is the opportunity cost of selecting the least profitable product line?

Reference no: EM133134130

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Identify the irrelevant costs

Reference no: EM133134130

Reference no: EM133134130

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