Marwick Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing process that can only be completed on machines that were recently purchased for this purpose. The machines have a maximum capacity of 10,500 machine hours, and no other products that the company makes use these machines. Sarah Jacob, the company’s operations manager, is preparing the production schedule for the coming month and can’t seem to find enough machine time to produce enough units to meet the customer demand that the marketing department has included in the sales budget. Michael Stoner, the company’s controller, has gathered the following information about the two products:
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.
Marwick Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing process that can only be completed on machines that were recently purchased for this purpose. The machines have a maximum capacity of 10,500 machine hours, and no other products that the company makes use these machines.
Sarah Jacob, the company’s operations manager, is preparing the production schedule for the coming month and can’t seem to find enough machine time to produce enough units to meet the customer demand that the marketing department has included in the sales budget.
Michael Stoner, the company’s controller, has gathered the following information about the two products:
|
Dumbbell
Rack |
Weight
Bench |
|||||||
|---|---|---|---|---|---|---|---|---|
|
Selling price per unit
|
$50 | $60 | ||||||
|
Direct materials
|
20 | 12 | ||||||
|
Direct labor
|
6 | 12 | ||||||
|
Variable
|
3 | 6 | ||||||
|
Fixed overhead
|
5 | 10 | ||||||
|
Profit per unit
|
$16 | $20 | ||||||
|
Unit sales demand
|
5,000 | 8,000 | ||||||
|
Machine hours per unit
|
0.75 | 1.5 |
Sarah has talked with the marketing department about the situation and suggested that the company raise the sales price on the weight bench to $75 to reduce customer demand. The marketing department believes that at the higher price, demand for the weight bench will drop to 5,800 units. What total contribution margin will Marwick earn?
| Total contribution margin |
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