Lopez Company is experiencing a bottleneck in its plant. Setup time has been identified as the bottleneck. The production manager has proposed a plan to reconfigure the plant layout that will reduce setup time. The following information is available regarding this change: Cost of Reconfiguration $41,000 Additional unit production and sales 9,000 Selling price $15.25 Direct Materials $ 5.00 Direct Labor $ 4.25 Variable Overhead $ 2.00 Which of the following best describes the financial results and whether Lopez Co. should go forward with the reconfiguration?
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.
Lopez Company is experiencing a bottleneck in its plant. Setup time has been identified as the bottleneck. The production manager has proposed a plan to reconfigure the plant layout that will reduce setup time. The following information is available regarding this change:
|
Cost of Reconfiguration |
$41,000 |
|
Additional unit production and sales |
9,000 |
|
Selling price |
$15.25 |
|
Direct Materials |
$ 5.00 |
|
Direct Labor |
$ 4.25 |
|
Variable |
$ 2.00 |
Which of the following best describes the financial results and whether Lopez Co. should go forward with the reconfiguration?
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