Assume a company is considering using available space to make 10,000 units of a component part that it has been buying from a supplier for a price of $40.25 per unit. The company’s accounting system estimates the following costs of making the part: Per Unit 10,000 Units per Year Direct materials $ 16 $ 160,000 Direct labor 12 120,000 Variable manufacturing overhead 2 20,000 Fixed manufacturing overhead, traceable 8 80,000 Fixed manufacturing overhead, allocated 4 40,000 Total cost $ 44 $ 420,000 One-half of the traceable fixed manufacturing overhead relates to a supervisor that would have to be hired to oversee production of the part. The remainder of the traceable fixed manufacturing overhead relates to depreciation of equipment that the company already owns. This equipment has 20,000 units of unused capacity, no resale value, and it does wear out through use. The allocated fixed manufacturing overhead relates to general overhead costs, such as the plant manager’s salary, lighting, heating and cooling costs, and plant insurance costs. What is the financial advantage (disadvantage) of making 10,000 units instead of buying them from the supplier? Multiple Choice $62,500 $(20,000) $(62,500) $20,000
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.
Assume a company is considering using available space to make 10,000 units of a component part that it has been buying from a supplier for a price of $40.25 per unit. The company’s accounting system estimates the following costs of making the part:
| Per Unit | 10,000 Units per Year |
||||||||
| Direct materials | $ | 16 | $ | 160,000 | |||||
| Direct labor | 12 | 120,000 | |||||||
| Variable manufacturing overhead | 2 | 20,000 | |||||||
| Fixed manufacturing overhead, traceable | 8 | 80,000 | |||||||
| Fixed manufacturing overhead, allocated | 4 | 40,000 | |||||||
| Total cost | $ | 44 | $ | 420,000 | |||||
One-half of the traceable fixed manufacturing overhead relates to a supervisor that would have to be hired to oversee production of the part. The remainder of the traceable fixed manufacturing overhead relates to
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$62,500
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$(20,000)
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$(62,500)
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$20,000
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