1) What reasons could explain why competitors are forcing the company to lower prices on its high-volume retail products? 2) Why do you believe the company charges less for custom order products than its competitors? 3) Does a company's costing method have any effect on its pricing decisions? Explain
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.
Xylon company manufactures custom made furniture for the local market and produces a line of home furnishings sold in retail stores across the country. the company uses traditional volume based methods of assigning direct materials and direct labor to its product line.
Meanwhile, it's custom made furniture is in high demand, and customers have commented on its favorable (lower) prices compared to its competitors. Management is considering dropping its line of retail products and devoting all of its resources to custom made furniture.
1) What reasons could explain why competitors are forcing the company to lower prices on its high-volume retail products?
2) Why do you believe the company charges less for custom order products than its competitors?
3) Does a company's costing method have any effect on its pricing decisions? Explain
4) Aside from the differences in volume of output, what production differences do you believe exists between making custom order furniture and mass market furnishings?
5) What information might the company obtain from using ABC that it might not obtain using volume based costing methods?
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