Alpha Company produces 1 000 units of Part X per month. The total manufacturing costs of the part are as follows: Direct materials P 10 000 Direct labor 15 000 Variable
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.
Alpha Company produces 1 000 units of Part X per month. The total
Direct materials P 10 000
Direct labor 15 000
Variable
Fixed overhead 30 000
Total manufacturing cost P 60 000
An outside supplier has offered to supply the part at P40 per unit. It is estimated that 20% of the fixed overhead assigned to Part X will no longer be incurred if the company purchases the part from the outside supplier.
If Alpha Company purchases 1 000 units of Part X form the outside supplier per month, then its monthly operating income will
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a.
Decrease by P20,000
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b.
Increase by P20,000
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c.
Not change.
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d.
Decrease by P4,000
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e.
Decrease by P5,000
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