1. After several years producing and selling at a capacity of 50,000 units, Milton Company faced a year with projected sales and production of 38,000 units. A potential customer offered to purchase 7,000 units at a price of P18 each. The normal sales price is P30 each. Direct material P9.00 Direct labor 6.50 Variable manufacturing overhead Fixed manufacturing overhead Total 2.00 3.75 P21.25 Should Milton accept the order? Justify your answer. 2. Fuji Company is currently manufacturing part A123, producing 40,000 units annually. The part is used in the production of several products made by the company. The cost per unit for A123 is as follows: Direct material P9.00 Direct labor 3.00 Variable manufacturing overhead Fixed manufacturing overhead 2.50 4.00 Total P18.50 Of the total fixed overhead assigned to A123, P88,000 is avoidable (the lease of production machinery and salary of a production line supervisor-neither of which will be needed if the line is dropped). The remaining fixed overhead is a common fixed overhead. An outside supplier has offered to sell the part to Fuji for P16. There is no alternative use for the facilities currently used to produce the part. Should Fuji Company make or buy part A123? Justify your answer.
1. After several years producing and selling at a capacity of 50,000 units, Milton Company faced a year with projected sales and production of 38,000 units. A potential customer offered to purchase 7,000 units at a price of P18 each. The normal sales price is P30 each. Direct material P9.00 Direct labor 6.50 Variable manufacturing overhead Fixed manufacturing overhead Total 2.00 3.75 P21.25 Should Milton accept the order? Justify your answer. 2. Fuji Company is currently manufacturing part A123, producing 40,000 units annually. The part is used in the production of several products made by the company. The cost per unit for A123 is as follows: Direct material P9.00 Direct labor 3.00 Variable manufacturing overhead Fixed manufacturing overhead 2.50 4.00 Total P18.50 Of the total fixed overhead assigned to A123, P88,000 is avoidable (the lease of production machinery and salary of a production line supervisor-neither of which will be needed if the line is dropped). The remaining fixed overhead is a common fixed overhead. An outside supplier has offered to sell the part to Fuji for P16. There is no alternative use for the facilities currently used to produce the part. Should Fuji Company make or buy part A123? Justify your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
Transcribed Image Text:3. The following information is available for Titan Company. Based on this information, the management
is considering eliminating product line C. They assumed that by operating only product lines A and B,
they would have higher profits. It was also determined that if product line C is discontinued, 80% of
the fixed overhead can be avoided, and 70% of the fixed selling and administrative expenses can also
be avoided.
Product A
P100,000
Product B
Product C
P200,000
Sales
P300,000
Cost of Goods Sold
80,000
50,000
15,000
Direct Materials
25,000
20,000
10,000
5,000
60,000
40,000
75,000
40,000
Labor
Variable Overhead
20,000
15,000
150,000
150,000
35,000
180,000
20,000
Fixed Overhead
Total
Gross Profit
Selling and Administrative
Variable
12,000
30,000
10,000
*Property of STI
Page 1 of 2
2 Activity 1
STI
BM2021
Product A
Product B
Product C
8,000
20,000
P20,000
Fixed
40,000
30,000
Total
70,000
80,000
40,000
(20,000)
Net Income (Loss)
Based on the above data, should product line C be continued or eliminated? Justify your answer.
Transcribed Image Text:1. After several years producing and selling at a capacity of 50,000 units, Milton Company faced a year
with projected sales and production of 38,000 units. A potential customer offered to purchase 7,000
units at a price of P18 each. The normal sales price is P30 each.
Direct material
P9.00
Direct labor
6.50
Variable manufacturing overhead
Fixed manufacturing overhead
Total
2.00
3.75
P21.25
Should Milton accept the order? Justify your answer.
2. Fuji Company is currently manufacturing part A123, producing 40,000 units annually. The part is used
in the production of several products made by the company. The cost per unit for A123 is as follows:
Direct material
P9.00
Direct labor
3.00
Variable manufacturing overhead
Fixed manufacturing overhead
Total
2.50
4.00
P18.50
Of the total fixed overhead assigned to A123, P88,000 is avoidable (the lease of production machinery
and salary of a production line supervisor-neither of which will be needed if the line is dropped). The
remaining fixed overhead is a common fixed overhead. An outside supplier has offered to sell the part
to Fuji for P16. There is no alternative use for the facilities currently used to produce the part.
Should Fuji Company make or buy part A123? Justify your answer.
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