Farah Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product which it sells at $132.7 per unit Production volume 12,500 units 14,000 units Direct materials $ 713,750 $ 799,400 Direct labor $ 256,250 $ 287,000 Manufacturing overhead (Mixed) $ 1,004,700 $ 1,027,350 Fixed selling and administrative expenses $ 384,050 $ 384,050 Required: Using high-low method and CVP analysis Compute Farah’s breakeven point in units and dollars. Prove your answer Compute how many units the company needs to sell to earn a profit of $ 600,000. Compute the selling price per unit of the company if BEP (units) is 40,000 units and the variable cost per unit and total fixed cost does not change. Explain the various methods used to estimate the variable component and the fixed component of the mixed cost (Excluding Scattergraph method) and state which method is the most accurate? Why?
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.
Farah Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product which it sells at $132.7 per unit
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Production volume |
|
12,500 |
units |
|
14,000 |
units |
|
Direct materials |
$ |
713,750 |
|
$ |
799,400 |
|
|
Direct labor |
$ |
256,250 |
|
$ |
287,000 |
|
|
Manufacturing overhead (Mixed) |
$ |
1,004,700 |
|
$ |
1,027,350 |
|
|
Fixed selling and administrative expenses |
$ |
384,050 |
|
$ |
384,050 |
|
Required: Using high-low method and CVP analysis
- Compute Farah’s breakeven point in units and dollars. Prove your answer
- Compute how many units the company needs to sell to earn a profit of $ 600,000.
- Compute the selling price per unit of the company if BEP (units) is 40,000 units and the variable cost per unit and total fixed cost does not change.
- Explain the various methods used to estimate the variable component and the fixed component of the mixed cost (Excluding Scattergraph method) and state which method is the most accurate? Why?
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