Question

Total sheets of customized paper used in a month	100000
cost of sheet	0.1
Customised paper contract notice period	3
Resale price of customised paper	0.03
Litres of Fluorescent ink used in a month	600
Cost of Fluorescent ink per litre	2
Fluorescent ink contract notice period (months)	1
Resale price per litre of Fluorescent ink	0.4
Other paper and material costs	5000
Rent of printing machinery	5500
Total Machine hours per month	120
Machinery rental contract notice period (months)	3
Employees costs (fixed in nature)	1200
Variable overhead cost per machine hour	4
Fixed overhead cost per machine hour (apportioned)	5
External Company's offered cost of printing	10000
In the below table, calculate Long term incremental cost/benefit if company opt for Printing department closure.
Relevant costs of internal printing	Amount
Customised paper	Answer
Fluorescent ink	Answer
Other paper and material	Answer
Machine rental	Answer
Labor costs	Answer
Variable overhead	Answer
Fixed overheads	Answer
Total relevant cost of internal printing	Answer
Cost of external printing services	Answer
Monthly saving from closure	Answer
In the below table, prepare month wise (Month from now) incremental cost/benefit if company opt for Printing Department Closure.
Relevant costs of internal printing	Month 1	Month 2	Month 3	Month 4
Customised paper	Answer	Answer	Answer	Answer
Revenue from sale of excess paper	Answer	Answer	Answer	Answer
Fluorescent ink	Answer	Answer	Answer	Answer
Revenue from sale of excess ink	Answer	Answer	Answer	Answer
Other paper and material	Answer	Answer	Answer	Answer
Machine rental	Answer	Answer	Answer	Answer
Labor costs	Answer	Answer	Answer	Answer
Variable overhead	Answer	Answer	Answer	Answer
Fixed overheads	Answer	Answer	Answer	Answer
Total relevant cost of internal printing	Answer	Answer	Answer	Answer
Cost of external printing services	Answer	Answer	Answer	Answer
Monthly saving from closure	Answer	Answer	Answer	Answer

Answer 1

1. Calculation of Long term incremental cost/benefit if company opt for Printing department closure.

Relevant costs of internal printing	Amount (Yearly)	Amount (Monthly)
Customised paper	120000	10000
Fluorescent ink	14400	1200
Other paper and material	60000	5000
Machine rental	66000	5500
Labor costs	14400	1200
Variable overhead	5760	480
Fixed overheads	7200	600
Total relevant cost of internal printing	287760	23980
Cost of external printing services	120000	10000
Monthly saving from closure	167760	13980

Alternatively,

Fixed overhead are sunk cost as they are apportioned and therefore irrelevant for decision making and shouldn't be taken into calculation above. Hence, answer will change accordingly.  

2. Month wise (Month from now) incremental cost/benefit if company opt for Printing Department Closure

Relevant costs of internal printing	Month 1	Month 2	Month 3	Month 4
Customised paper	10000	10000	10000	10000
Revenue from sale of excess paper	0	0	0	-6000
Fluorescent ink	1200	1200	1200	1200
Revenue from sale of excess ink	0	0	0	0
Other paper and material	5000	5000	5000	5000
Machine rental	5500	5500	5500	5500
Labor costs	1200	1200	1200	1200
Variable overhead	480	480	480	480
Fixed overheads	600	600	600	600
Total relevant cost of internal printing	23980	23980	23980	17980
Cost of external printing services	10000	10000	10000	10000
Monthly saving from closure	13980	13980	13980	7980

Note:

1. It has been assumed that purchase of customized paper has been done in every 3 months for the full quarter therefore in month 4 sale of excess paper has been made. Such sale should be reduced from the cost .

2. Contract period of fluorescent is 1 month so it is assumed that only required quantities are purchased and there is no excess.