ABC Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows: Direct materials $ 42,000 Direct labor 51,000 Variable overhead 42,000 Fixed overhead 45,000 Total Cost 180,000 An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one-third of the fixed overhead would be avoided. Should the company make or buy? ( show calculation to support your decision).
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.
- ABC Manufacturing Corp. is using 10,000 units of part no. 300 as a component to assemble one of its products. It costs the company $18 per unit to produce it internally, computed as follows:
|
Direct materials |
$ 42,000 |
|
Direct labor |
51,000 |
|
Variable |
42,000 |
|
Fixed overhead |
45,000 |
|
Total Cost |
180,000 |
An outside vendor has just offered to supply the part for $16 per unit. If the company stops producing this part, one-third of the fixed overhead would be avoided. Should the company make or buy? ( show calculation to support your decision).
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