Great Company manufactures 60, 000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40: Total Costs Cost per 60, 000 units unit Direct material Br. 480, 000 Br.8 Direct labor 360, 000 6 Variable factory overhead (FOH) 180, 000 3 Fixed FOH 360, 000 6 Total manufacturing costs Br.1, 380, 000 Br.23 Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br. 120, 000 pertaining to some supervisory and custodial personnel could be avoided. Instructions: a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased? b) Assume that the capacity now used to make parts will be either (i) be rented to near by manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per year. Should the company purchase them from the outside supplier?
Great Company manufactures 60, 000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40: Total Costs Cost per 60, 000 units unit Direct material Br. 480, 000 Br.8 Direct labor 360, 000 6 Variable factory overhead (FOH) 180, 000 3 Fixed FOH 360, 000 6 Total manufacturing costs Br.1, 380, 000 Br.23 Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br. 120, 000 pertaining to some supervisory and custodial personnel could be avoided. Instructions: a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased? b) Assume that the capacity now used to make parts will be either (i) be rented to near by manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per year. Should the company purchase them from the outside supplier?
Chapter5: Process Costing
Section: Chapter Questions
Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...
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Concept explainers
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.
Topic Video
Question
Great Company manufactures 60, 000 units of part XL-40 each year for use
on its production line. The following are the costs of making part XL-40:
Total Costs Cost per
60, 000 units unit
Direct material Br. 480, 000 Br.8
Direct labor 360, 000 6
Variable factory overhead (FOH) 180, 000 3
Fixed FOH 360, 000 6
Total manufacturing costs Br.1, 380, 000 Br.23
Another manufacturer has offered to sell the same part to Great for Br.21 each. The
fixed overhead consists of depreciation , property taxes, insurance, and supervisory
salaries. The entire fixed overhead would continue if the Great Company bought the
component except that the cost of Br. 120, 000 pertaining to some supervisory and
custodial personnel could be avoided.
Instructions:
a) Should the parts be made or bought? Assume that the capacity now used to
make parts internally will become idle if the pats are purchased?
b) Assume that the capacity now used to make parts will be either (i) be rented to
near by manufacturer for Br. 60, 000 for the year or (ii) be used to make another
product that will yield a profit contribution of Br. 250,000 per year. Should the
company purchase them from the outside supplier?
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