hics and a Cost-Volume-Profit Application Danna Lumus, the marketing manager for a division that produces a variety of paper products, is considering the divisional manager's request for a sales forecast for a new line of paper napkins. The divisional manager has been gathering data so that he can choose between two different production processes. The first processwould have a variab
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.
Ethics and a Cost-Volume-Profit Application
Danna Lumus, the marketing manager for a division that produces a variety of paper products, is considering the divisional manager's request for a sales
Danna is reluctant to report the 30,000 forecast to the divisional manager. She knows that the first process would be labor intensive, whereas the second would be largely automated with little labor and no requirement for an additional production supervisor. If the first process is chosen, Jerry Johnson, a good friend, will be appointed as the line supervisor. If the second process is chosen, Jerry and an entire line of laborers will be laid off. After some consideration, Danna revises the projected sales downward to 22,000 cases.
She believes that the revision downward is justified. Since it will lead the divisional manager to choose the manual system, it shows a sensitivity to the needs of current employees—a sensitivity that she is afraid her divisional manager does not possess. He is too focused on quantitative factors in his decision making and usually ignores the qualitative aspects.
Required:
- Compute the break-even point in units for each
- Compute the sales volume for which the two processes are equally profitable. (Hint: set each process’s operating income equation equal to one another.) Identify the range of sales for which the manual process is more profitable than the automated process. Identify the range of sales for which the automated process is more profitable than the manual process. Why does the divisional manager want the sales forecast?
- Discuss Danna's decision to alter the sales forecast. Do you agree with it? Is she acting ethically? Is her decision justified since it helps a number of employees retain their employment? Should the impact on employees be factored into decisions? In fact, is it unethical not to consider the impact of decisions on employees?
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