A company manufactures a single product. Unit costs are: $/Unit Variable production cost 14.75 Fixed production 8.30 Variable selling 2.60 Fixed selling 5.45 400,000 units of the product were manufactured in a period, during which 394,000 units were sold. There was no inventory of the product at the beginning of the period. i) Use Marginal costing to calculate the total value of the finished goods inventory at the end of the period. ii) Many firms have decided to use marginal costing to prepare the income statement. Please briefly explain the benefits of using marginal costing. 2. Newcastle Ltd manufactures and sells T-shirts imprinted with college names and slogans. Last Year, the shirts sold for £7.50 each, and the variable cost was £2.25 per shirt. The company needed to sell 20,000 shirts to break even. The net operating profit last year was £8,400. The company’s expectations for the coming year include the following: The selling price per T-shirt will increase by £1.50 Variable cost will increase by one third Fixed cost will increase by 10% If Newcastle Ltd wishes to earn £22,500 in net operating profit for the coming year, how much sales does this company have to make? 3) The production department of Y Company is planning to purchase a new machine to improve product quality. The company’s management accountant is currently evaluating two options- Buy the machine OR Rent it. Following information is available: The company has to pay £3,200 to set up the machine. Insurance cost £450 per annum. If it is bought, the new machine is depreciated on reducing balance basis at the rate of 25%. After various calculations, the company has to pay £4,200 maintenance cost every year and estimated repair cost would be £300 per year. The firm will have to sell old machines, which had cost £65,000 six years ago. Apart from the above information, the £500 of delivery cost is incurred for this purchase option. If it is rented, £ 4,650 per year to pay as rent. There is no cost for repair and maintenance. However, the firm is required to pay the administration charge of £650 with this rent option. For rent option, the delivery cost remains at 20% of the £ 500 (the delivery cost for purchase option). For the rent option, firm is not going to sell old machines. Should the company buy or rent new machine?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Please answer Q1-2. I have BOLD questions that need answering please.
- A company manufactures a single product.
Unit costs are: $/Unit
|
Variable production cost 14.75 |
Fixed production 8.30 |
|
Variable selling 2.60 |
Fixed selling 5.45 |
400,000 units of the product were manufactured in a period, during which 394,000 units were sold. There was no inventory of the product at the beginning of the period.
i) Use Marginal costing to calculate the total value of the finished goods inventory at the end of the period.
ii) Many firms have decided to use marginal costing to prepare the income statement. Please briefly explain the benefits of using marginal costing.
2. Newcastle Ltd manufactures and sells T-shirts imprinted with college names and slogans. Last Year, the shirts sold for £7.50 each, and the variable cost was £2.25 per shirt. The company needed to sell 20,000 shirts to break even. The net operating profit last year was £8,400. The company’s expectations for the coming year include the following:
- The selling price per T-shirt will increase by £1.50
- Variable cost will increase by one third
- Fixed cost will increase by 10%
If Newcastle Ltd wishes to earn £22,500 in net operating profit for the coming year, how much sales does this company have to make?
3) The production department of Y Company is planning to purchase a new machine to improve product quality. The company’s
- The company has to pay £3,200 to set up the machine. Insurance cost £450 per annum.
- If it is bought, the new machine is
depreciated on reducing balance basis at the rate of 25%. After various calculations, the company has to pay £4,200 maintenance cost every year and estimated repair cost would be £300 per year. The firm will have to sell old machines, which had cost £65,000 six years ago. Apart from the above information, the £500 of delivery cost is incurred for this purchase option. - If it is rented, £ 4,650 per year to pay as rent. There is no cost for repair and maintenance. However, the firm is required to pay the administration charge of £650 with this rent option. For rent option, the delivery cost remains at 20% of the £ 500 (the delivery cost for purchase option). For the rent option, firm is not going to sell old machines.
Should the company buy or rent new machine?
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