Cost per Unit Costs for 40,000 Units $8.00 $320,000 Direct materials 160,000 Direct manufacturing labor Variable manufacturing overhead 4.00 2.00 80,000 Inspection, setup, materials handling 8,000 Machine rent 12,000 80,000 $660,000 Allocated fixed costs of plant administration, taxes, and insurance Total costs
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.
Make versus buy, activity-based costing, opportunity costs. The Lexington Company produces gas grills. This year’s expected production is 20,000 units. Currently, Lexington makes the side burners for its grills. Each grill includes two side burners. Lexington’s
Lexington has received an offer from an outside vendor to supply any number of burners Lexington requires at $14.80 per burner. The following additional information is available:
- Inspection, setup, and materials-handling costs vary with the number of batches in which the burners are produced. Lexington produces burners in batch sizes of 1,000 units. Lexington will produce the 40,000 units in 40 batches.
- Lexington rents the machine it uses to make the burners. If Lexington buys all of its burners from the outside vendor, it does not need to pay rent on this machine.
- Assume that if Lexington purchases the burners from the outside vendor, the facility where the burners are currently made will remain idle. On the basis of financial considerations alone, should Lexington accept the outside vendor’s offer at the anticipated volume of 40,000 burners? Show your calculations.
- For this question, assume that if the burners are purchased outside, the facilities where the burners are currently made will be used to upgrade the grills by adding a rotisserie attachment. (Note: Each grill contains two burners and one rotisserie attachment.) As a consequence, the selling price of grills will be raised by $48. The variable cost per unit of the upgrade would be $38, and additional tooling costs of $160,000 per year would be incurred. On the basis of financial considerations alone, should Lexington make or buy the burners, assuming that 20,000 grills are produced (and sold)? Show your calculations.
- The sales manager at Lexington is concerned that the estimate of 20,000 grills may be high and believes that only 16,000 grills will be sold. Production will be cut back, freeing up work space. This space can be used to add the rotisserie attachments whether Lexington buys the burners or makes them in-house. At this lower output, Lexington will produce the burners in 32 batches of 1,000 units each. On the basis of financial considerations alone, should Lexington purchase the burners from the outside vendor? Show your calculations.
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