Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit Production (# of boxes) 4,000 6,000 Production Costs: Direct Materials $60,000 $90,000 Direct Labour 80,000 120,000 Overhead: Indirect Materials 25,000 37,500 Indirect Labour
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.
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020.
Lower Limit Upper Limit
Production (# of boxes) 4,000 6,000
Production Costs:
Direct Materials $60,000 $90,000
Direct Labour 80,000 120,000
Overhead:
Indirect Materials 25,000 37,500
Indirect Labour 40,000 50,000
Selling & Administrative Expenses:
Sales Salaries 50,000 65,000
Office Salaries 30,000 30,000
Advertising 45,000 45,000
Other 15,000 20,000
Total $365,000 $477,500
f) The President of Buggs-Off is under pressure from shareholders to increase operating income by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the
equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal?
g) Briefly explain the impact of each of the following scenarios on the contribution margin per unit and the break-even point:
(i) Sales volume increases
(ii) Total fixed cost decreases
(iii) Selling price per unit increases
(iv) Variable cost per unit increases
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