Cash Flows Case
Autor: annabrown • December 4, 2012 • Course Note • 283 Words (2 Pages) • 1,553 Views
1. Net income would be increased by £1,200 if the order were taken.
Differential cash flows include:
Sales
Direct material
Direct labor
Variable portion of overhead
Non Differential cash flows….
Fixed overhead is assumed to be fixed for this special order (no additional equipment, no additional supervision, no additional building, no additional heating of building)….
To calculate variable overhead:
Total Overhead £400,000
Less: Fixed overhead 160,000
Variable overhead £240,000
Divided by DL cost
Which is the driver of
Overhead……………… 320,000
Gives an variable overhead application rate of 75% of Direct labor
Now ….FCFDAA
Alternatives (1) (2)
With the Order No order
Sales £18,000 0
Direct material 5,600 0
Direct labour 6,400 0
Variable overhead 4,800 0
Fixed overhead 0 0
Total costs 16,800 0
Operating income £ 1,200 0
IMPACT
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