Page 68 - MAC4861_2 Costing class slides part 2

DECISION MAKING

Discontinuation Decisions - Example

John started his business 5 years ago, but Division A has been struggling for
the past 2 years due to intense market competition from other leading brands.

The results of Division A for the year ending 31 March 2013 were as follows:

Sales R400 000

Direct material (R250 000)

Depreciation (R50 000)

Salaries and wages (R170 000)

(R70 000)

If Division A is shut down the entire workforce will be retrenched at a cost of
R60 000.

Determine whether Division A should be shut down or not.

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