Delta Company produces a single product. The cost of producing and selling a single unit of this productat the company’s normal activity level of 60,000 units per year is:Direct materials ................................................... $5.10Direct labor .......................................................... $3.80Variable manufacturing overhead ....................... $1.00Fixed manufacturing overhead ........................... $4.20Variable selling and administrative expense ....... $1.50Fixed selling and administrative expense ........... $2.40The normal selling price is $21 per unit. The company’s capacity is 75,000 units per year. An order hasbeen received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This orderwould not affect regular sales.Required:1. If the order is accepted, by how much will annual profits be increased or decreased? (The order willnot change the company’s total fixed costs.)2. Assume the company has 1,000 units of this product left over from last year that are inferior to thecurrent model. The units must be sold through regular channels at reduced prices. What unit cost isrelevant for establishing a minimum selling price for these units? Explain.
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.
Delta Company produces a single product. The cost of producing and selling a single unit of this product
at the company’s normal activity level of 60,000 units per year is:
Direct materials ................................................... $5.10
Direct labor .......................................................... $3.80
Variable manufacturing
Fixed manufacturing overhead ........................... $4.20
Variable selling and administrative expense ....... $1.50
Fixed selling and administrative expense ........... $2.40
The normal selling price is $21 per unit. The company’s capacity is 75,000 units per year. An order has
been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order
would not affect regular sales.
Required:
1. If the order is accepted, by how much will annual profits be increased or decreased? (The order will
not change the company’s total fixed costs.)
2. Assume the company has 1,000 units of this product left over from last year that are inferior to the
current model. The units must be sold through regular channels at reduced prices. What unit cost is
relevant for establishing a minimum selling price for these units? Explain.
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