Category Production rate (parts/hour) Labor hours required (hours/year) Annual labor cost (@ $8.10/hour) Annual power cost Initial investment Salvage value Service life (years) By Hand Model A Model B Model C 5 10 15 20 320 160 107 80 $2,592 $1,296 $867 $648 $400 $420 $480 $4,000 $6,000 $7,000 $400 $600 $700 20 20 20
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.
Baby Doll Shop currently manufactures wooden parts for dollhouses. Its
sole worker is paid $8.10 an hour and, using a handsaw, can produce a year's required production (1,600 parts) in just eight weeks of 40 hours per week. That is, the worker averages five parts per hour when working by hand. The shop is considering the purchase of a power band saw with associated fixtures in order to improve the productivity of this operation. Three models of power saw could be purchased: Model A (economy version), Model B (high-powered version), and Model C (deluxe high-end version). The major operating difference between these models is their speed of operation. The investment costs, including the required fixtures and other operating characteristics, are summarized as follows:
Assume that MARR = 10%. Are there enough potential savings to make it
economical to purchase any of the power band saws? Which model is most economical according to the rate-of-return principle? (Assume that any effect of income tax has already been considered in the dollar estimates.) (Source: This problem is adapted with the permission of Professor Peter Jackson of Cornell University.)
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