Company ABC produces toys for many shops. Due to its excess capacity, the company tries to start a new product line to manufacture a new toy car model. The company has gathered the following information on the product line from which the company can make 1,000 toy cars. For each toy car, the direct materials cost $60, direct labor costs $40, and total manufacturing overhead costs $20. Due to the excess capacity, producing the new toy car has no impact on fixed manufacturing overhead. However, a total of $10,000 fixed manufacturing overhead is absorbed by this new product line under the company’s absorption costing system. What is total variable cost for producing each unit of toy car? The company is considering renting a new equipment to produce the new toy cars. The rental fee for producing 1,000 toy cars is $40,000. The new equipment will effectively reduce each toy’s direct labor cost by 30%, direct materials cost by 50%, and variable manufacturing overhead by 50%. Is it worthwhile for the company to rent the new equipment?
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.
Company ABC produces toys for many shops. Due to its excess capacity, the company tries to start a new product line to manufacture a new toy car model. The company has gathered the following information on the product line from which the company can make 1,000 toy cars. For each toy car, the direct materials cost $60, direct labor costs $40, and total
- What is total variable cost for producing each unit of toy car?
- The company is considering renting a new equipment to produce the new toy cars. The rental fee for producing 1,000 toy cars is $40,000. The new equipment will effectively reduce each toy’s direct labor cost by 30%, direct materials cost by 50%, and variable manufacturing overhead by 50%. Is it worthwhile for the company to rent the new equipment?
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