Direct materials $ 15 $ 330,000 Direct labor 8 176,000 Variable manufacturing overhead 3 66,000 Fixed manufacturing overhead, traceable 3* 66,000 Fixed manufacturing overhead, allocated 6 132,000 Total cost $ 35 $ 770,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier? 2. Should the outside supplier’s offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $220,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier’s offer be accepted?
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.
| Direct materials | $ 15 | $ 330,000 |
|---|---|---|
| Direct labor | 8 | 176,000 |
| Variable manufacturing |
3 | 66,000 |
| Fixed manufacturing overhead, traceable | 3* | 66,000 |
| Fixed manufacturing overhead, allocated | 6 | 132,000 |
| Total cost | $ 35 | $ 770,000 |
*One-third supervisory salaries; two-thirds
Required:
1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier?
2. Should the outside supplier’s offer be accepted?
3. Suppose that if the carburetors were purchased, Troy Engines, Limited, could use the freed capacity to launch a new product. The segment margin of the new product would be $220,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 22,000 carburetors from the outside supplier?
4. Given the new assumption in requirement 3, should the outside supplier’s offer be accepted?
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