Should the company accept / reject the order? Keeping in view the above answer narrate rationale to support 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.
The HASF Company has an annual plant capacity of 50,000 units. Predicted data on sales and costs are given below.
Sales (50 per unit) 1,000,000
Variable (material labor and overhead) 40 per unit
Fixed overhead 30,000
Selling and administrative expenses
Variable (sales commission RS 0.5 per unit) 2 per unit
Fixed 7,000
A special order has been received from outside for 5,000 units at a selling price of 45 per unit this order will no effect on regular sales. The usual sales commission on this order will be reduced by one half.
Required:
- Should the company accept / reject the order?
- Keeping in view the above answer narrate rationale to support your answer
Incremental analysis:
Incremental analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.
Decision making:
Decision making can be defined as the process of making choices through the identification of a decision, collecting information, and assessing alternative resolutions. The implementation of a step-by-step process of decision making helps in making deliberate and effective decisions through proper organization of relevant information and defining alternatives.
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