Assume a firm has prepared the following cost estimates for the manufacture of a sub-assembly component based on an annual production of 8000 units: Per Unit (Rs) Total (Rs) Direct Materials 5 40,000 Direct Labour 4 32000 Variable Overhead Applied 4 32000 Fixed Overhead Applied(150% of direct labour cost 6 48000 Total cost 19 152000 The supplier has offered the sub-assembly at a price of $16 each. Two-thirds of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the company buy or make the product?
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.
Assume a firm has prepared the following cost estimates for the manufacture of a sub-assembly component based on an annual production of 8000 units:
|
|
Per Unit (Rs) |
Total (Rs) |
|
Direct Materials |
5 |
40,000
|
|
Direct Labour |
4 |
32000 |
|
Variable |
4 |
32000 |
|
Fixed Overhead Applied(150% of direct labour cost |
6 |
48000 |
|
Total cost |
19 |
152000 |
The supplier has offered the sub-assembly at a price of $16 each. Two-thirds of fixed factory overhead, which represents executive salaries, rent,
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