Farrow Company reports the following annual results. Contribution Margin Income Statement Per Unit Annual Total Sales (240,000 units) $ 15.00 $ 3,600,000 Variable costs Direct materials 2.00 480,000 Direct labor 4.00 960,000 Overhead 2.50 600,000 Contribution margin 6.50 1,560,000 Fixed costs Fixed overhead 2.00 480,000 Fixed general and administrative 1.50 360,000 Income $ 3.00 $ 720,000
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.
Farrow Company reports the following annual results.
| Contribution Margin Income Statement | Per Unit | Annual Total |
|---|---|---|
| Sales (240,000 units) | $ 15.00 | $ 3,600,000 |
| Variable costs | ||
| Direct materials | 2.00 | 480,000 |
| Direct labor | 4.00 | 960,000 |
| 2.50 | 600,000 | |
| Contribution margin | 6.50 | 1,560,000 |
| Fixed costs | ||
| Fixed overhead | 2.00 | 480,000 |
| Fixed general and administrative | 1.50 | 360,000 |
| Income | $ 3.00 | $ 720,000 |
The company receives a special offer for 24,000 units at $12 per unit. The additional sales would not affect its normal sales. Variable costs per unit would be the same for the special offer as they are for the normal units. The special offer would require incremental fixed overhead of $96,000 and incremental fixed general and administrative costs of $103,000.
(a) Compute the income or loss for the special offer.
(b) Should the company accept or reject the special offer?
Compute the income or loss for the special offer. (Round your "Per Unit" answers to 2 decimal places.)
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