Fuji Company is currently manufacturing part A123, producing 40,000 units The part is used in the production of several products made by the company. The cost per unit for A123 is as follows: Direct material P9.00 Direct labor 3.00 Variable manufacturing overhead 2.50 Fixed manufacturing overhead 4.00 Total P18.50 Of the total fixed overhead assigned to A123, P88,000 is avoidable (the lease of production machinery and salary of a production line supervisor–neither of which will be needed if the line is dropped). The remaining fixed overhead is a common fixed overhead. An outside supplier has offered to sell the part to Fuji for P16. There is no alternative use for the facilities currently used to produce the part. Should Fuji Company make or buy part A123? Justify your answer.
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.
- Fuji Company is currently manufacturing part A123, producing 40,000 units The part is used in the production of several products made by the company. The cost per unit for A123 is as follows:
|
Direct material |
P9.00 |
|
Direct labor |
3.00 |
|
Variable manufacturing overhead |
2.50 |
|
Fixed manufacturing overhead |
4.00 |
|
Total |
P18.50 |
Of the total fixed overhead assigned to A123, P88,000 is avoidable (the lease of production machinery and salary of a production line supervisor–neither of which will be needed if the line is dropped). The remaining fixed overhead is a common fixed overhead. An outside supplier has offered to sell the part to Fuji for P16. There is no alternative use for the facilities currently used to produce the part.
Should Fuji Company make or buy part A123? Justify your answer.
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