a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEM to consider this order? (hint: GEM would not accept the order if it would reduce the company’s profit) (b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain. (c) “All future costs are relevant in decision making.” Do you agree? 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.
GEM Limited has a single product Flicks. The company normally produces and sells 80,000
units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of
activity are as follow:
Direct material $57.00
Direct labor 60.00
Variable manufacturing
Fixed manufacturing overhead 30.00
Variable selling and administrative costs 10.20
Fixed selling and administrative costs 27.00
Total unit cost $201.00
GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in
fixed manufacturing overhead.
Required:
(a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and
other special costs associated with this order would total $42 000. The only selling costs
that would be associated with the order would be a shipping cost of $9.00 per unit.
What would be the minimum acceptable unit price for GEM to consider this order?
(hint: GEM would not accept the order if it would reduce the company’s profit)
(b) The company has 200 units of Flicks on hand that were produced two months ago. Due
to blemishes on the units, it will be impossible to sell these units at the normal price. If
the company wishes to sell them through regular sales channels, what would be the
relevant cost for setting the minimum price? Explain.
(c) “All future costs are relevant in decision making.” Do you agree? Explain.
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