Manaerial Accounting Chapter 7 Solutions

The total cost of production of Sony’s new product is the addition of both fixed and variable costs. Fixed costs are assets within a business that are not used up or sold during the typical production course e.g. buildings and machinery. Variable costs are costs that fluctuate in time with the production output or sales revenue of a company such as Sony e.g. raw material and labour costs. Figure 1.1 shows how the total cost is composed of both fixed and variable costs.

Variable costs are expenses directly associated with the product or service e.g. raw materials, components, packaging.

1- The total unit cost = Total Variable Cost + Production Fixed Expenses + Advertising Expense + Selling and Administrative Expense = 3.23 + 1.20 + 0.30 + 0.19 = 4.92.

The product cost per unit under absorption costing is $15.00 and under variable costing are 10.60.

net operating income will tend to move up and down in response to changes in levels of production.

The Ilarion Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $117,000 of manufacturing overhead for an estimated allocation base of $90,000 direct labor dollars. The company has provided the following data in the form of an Excel worksheet:

Absorption costing is used for all outside reports. All non-direct fixed costs are allocated using various allocation bases as indicated throughout the project. The Company does not use a full ABC costing system; however, it does employee some of the ABC concepts in the budgeting process.

Answer: D DM 13.00 + DL 55.00 + V OH 1.00 + F OH 15.00 = 84.00

To effectively plan overhead costs for a product the management must aim to eliminate activities that do not add any value to the product in question. The process of costing is very important in that it supplies information on evaluation and control to various aspects of a business enterprise. Variance measures price and quantity differences that occur in any budgeted and actual prices and quantities. There exist a difference between fixed overhead spending variance and variable overhead spending variance in that the fixed overhead spending variance does not include estimation error while variable spending variable does.

The Alpha Division of the Carlson Company manufactures product X at a variable cost of $40 per unit. Alpha Division 's fixed costs, which are sunk, are $20 per unit. The market price of X is $70 per unit. Beta Division of Carlson Company uses product X to make Y. The

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

One will note that six of the costs to consider are incremental. By definition, incremental costs would not be incurred if the part were purchased from an outside source. If a firm does not currently have the capacity to make the part, incremental costs will include variable costs plus the full portion of fixed overhead allocable to the part 's manufacture. If the firm has excess capacity that can be used to produce the part in question, only the variable overhead caused by production of the parts are considered incremental. That is, fixed costs, under conditions of sufficient idle capacity, are not incremental and should not be considered as part of the cost to make the part.

In determining the fixed costs per unit for the period for absorption costing (not needed for variable costing since the entire fixed cost is expensed as a cost of the month, not a cost of units), you spread the fixed costs across all the units made. Since production was increased substantially, the fixed cost per unit was reduced:

In the following case Mark Webb has based his thinking on absorption costing and not on marginal costing approach on the basis of which Pedro was calculating cost and making profit. Marginal costing is a traditional method and as per (QFinance 2014) an accounting system that treat variable and fixed costs differently. It is a system in which variable costs are charged to cost units and fixed costs of the period are written off in full against the aggregate contribution. Whereas, according to CIMA (2005), absorption costing has been defined as “a method which assigns direct costs or a proportionate part of overheads to cost units by use of one or more absorption rate”.In other words as per Ultimate Resources(2011) an accounting practice in which fixed and variable costs of

Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.