Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly: Direct materials.. .$108,000 Direct labor.... 72,000 100,000 Fixed overhead... A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should continue to make the product or should buy the product under each of the following conditions: (1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of the number of square feet occupied by the manufacturing operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be: (circle one) (a) $114,000 better off (b) $36,000 better off (c) $64,000 worse off (d) $60,000 better off (e) $100,000 worse off (2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent the salary of a production manager who would be let go if Comet discontinues manufacturing the product. If Comet makes the product, it would be: (circle one) (a) $76,000 better off (b) $80,000 better off (c) $4,000 worse off (d) $12,000 better off (e) $24,000 worse off (3) The same information as part (1) with the following modification: Comet can rent out the idle capacity in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If Comet makes the product, it would be: (circle one) (a) $29,000 better off (b) $83,000 better off (c) $61,000 worse off (d) $11,000 better off (e) $14,000 worse off
Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly: Direct materials.. .$108,000 Direct labor.... 72,000 100,000 Fixed overhead... A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should continue to make the product or should buy the product under each of the following conditions: (1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant allocated to this product on the basis of the number of square feet occupied by the manufacturing operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be: (circle one) (a) $114,000 better off (b) $36,000 better off (c) $64,000 worse off (d) $60,000 better off (e) $100,000 worse off (2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent the salary of a production manager who would be let go if Comet discontinues manufacturing the product. If Comet makes the product, it would be: (circle one) (a) $76,000 better off (b) $80,000 better off (c) $4,000 worse off (d) $12,000 better off (e) $24,000 worse off (3) The same information as part (1) with the following modification: Comet can rent out the idle capacity in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If Comet makes the product, it would be: (circle one) (a) $29,000 better off (b) $83,000 better off (c) $61,000 worse off (d) $11,000 better off (e) $14,000 worse off
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.
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Question
Transcribed Image Text:Comet, Inc. has been experiencing the following costs when it produces 12,000 units of a subassembly:
Direct materials..
.$108,000
Direct labor....
72,000
100,000
Fixed overhead...
A supplier offers to sell Comet an identical product for $18 per unit. Determine whether Comet should
continue to make the product or should buy the product under each of the following conditions:
(1) The fixed overhead represents the cost of insurance, taxes and depreciation on the manufacturing plant
allocated to this product on the basis of the number of square feet occupied by the manufacturing
operation. Comet has no alternative plans for use of this space. If Comet makes the product, it would be:
(circle one)
(a) $114,000 better off
(b) $36,000 better off
(c) $64,000 worse off
(d) $60,000 better off
(e) $100,000 worse off
(2) The same information as part (1) with the following modification: $40,000 of the fixed costs represent
the salary of a production manager who would be let go if Comet discontinues manufacturing the product.
If Comet makes the product, it would be: (circle one)
(a) $76,000 better off
(b) $80,000 better off
(c) $4,000 worse off
(d) $12,000 better off
(e) $24,000 worse off
(3) The same information as part (1) with the following modification: Comet can rent out the idle capacity
in the plant if it discontinues manufacturing the product. The total rent would be $25,000 per year. If
Comet makes the product, it would be: (circle one)
(a) $29,000 better off
(b) $83,000 better off
(c) $61,000 worse off
(d) $11,000 better off
(e) $14,000 worse off
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