The Mixed Products Company sells one of its products for $180 per unit. The Company incurs the following costs per unit: Direct materials $40.00 Direct labor 18.00 Variable manufacturing overhead 7.50 Variable selling expenses 4.00 Fixed manufacturing overhead 25.00* * $2,500,000 total fixed manufacturing overhead/ 100,000 The company has enough idle capacity to accept a one-time only special order for 20,000 units of the product for $90 per unit and will not incur any additional selling expenses if it accepts the order. Required: Show with calculations how accepting the one-time order will affect the company’s operating income.
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 Mixed Products Company sells one of its products for $180 per unit. The Company incurs the following costs per unit:
Direct materials $40.00
Direct labor 18.00
Variable manufacturing overhead 7.50
Variable selling expenses 4.00
Fixed manufacturing overhead 25.00*
* $2,500,000 total fixed manufacturing overhead/ 100,000
The company has enough idle capacity to accept a one-time only special order for 20,000 units of the product for $90 per unit and will not incur any additional selling expenses if it accepts the order.
Required: Show with calculations how accepting the one-time order will affect the company’s operating income.
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