Alibangbang Company produces 100,000 units of Part 34B, used in one of its snowblower engines, each year. An outside supplier has offered to supply the part for $4.75. The unit cost is: Direct material - $0.5; Direct labor - 2.4; Variable overhead (power) - 0.9; Fixed overhead - 1.05; Total unit cost - $4.85. Overhead is applied on the basis of machine hours. Part 34B requires 30,000 machine hours per year. What if $60,000 of fixed overhead is supervision for Part 34B that is avoided if the part is purchased? Which alternative is more cost effective and by how much? a.Buy, because of the company would be able to avoid $60,000 fixed overhead from supervision. b.Make, since the company would be able to save by fixed overhead by over $50,000. c.Buy, the company would be able to save $70,000 of variable costs. d.Make, since the company would still be able to save by as much as $35,000 despite the additional fixed overhead.
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.
Alibangbang Company produces 100,000 units of Part 34B, used in one of its snowblower engines, each year. An outside supplier has offered to supply the part for $4.75. The unit cost is: Direct material - $0.5; Direct labor - 2.4; Variable overhead (power) - 0.9; Fixed overhead - 1.05; Total unit cost - $4.85. Overhead is applied on the basis of machine hours. Part 34B requires 30,000 machine hours per year.
What if $60,000 of fixed overhead is supervision for Part 34B that is avoided if the part is purchased? Which alternative is more cost effective and by how much?
a.Buy, because of the company would be able to avoid $60,000 fixed overhead from supervision.
b.Make, since the company would be able to save by fixed overhead by over $50,000.
c.Buy, the company would be able to save $70,000 of variable costs.
d.Make, since the company would still be able to save by as much as $35,000 despite the additional fixed overhead.
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