Black Ltd manufactures and sells a single product which has the following cost and selling structure: £/Unit Selling price 50 Direct labour 10 Direct materials 8 Variable overheads 2 The direct costs are considered to be variable. The fixed overheads are £600,000. The forecast sales are 30,000 units and the maximum output of product is 35,000 units. Required: (a)Calculate the break-even point in units and the profit at the forecast output. (b)One of the managers has suggested that if the selling price was reduced to £40 per unit and with additional advertising cost of £20,000, the sales would increase to the maximum amount. The manager has suggested that for this strategy a cheaper material could be used costing 25% less than the original material, however the direct labour cost would increase by £2 per unit. For this new strategy you are to calculate both the new break-even point in units and the new forecast profit. Explain briefly if you would recommend the manager’s suggestion to be implemented.
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.
1. Black Ltd manufactures and sells a single product which has the following
cost and selling structure:
£/Unit
Selling price 50
Direct labour 10
Direct materials 8
Variable
The direct costs are considered to be variable. The fixed overheads are
£600,000. The
product is 35,000 units.
Required:
(a)Calculate the break-even point in units and the profit at the forecast
output.
(b)One of the managers has suggested that if the selling price was reduced
to £40 per unit and with additional advertising cost of £20,000, the sales
would increase to the maximum amount. The manager has suggested
that for this strategy a cheaper material could be used costing 25% less
than the original material, however the direct labour cost would
increase by £2 per unit. For this new strategy you are to calculate both
the new break-even point in units and the new forecast profit. Explain
briefly if you would recommend the manager’s suggestion to be
implemented.
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