our Corporation has received a request for a special order of 6,000 units of its product for $19 each. The product unit cost is as follows: Direct materials......................................... $6.10 Direct labor................................................ 4.20 Variable manufacturing overhead............. 2.30 Fixed manufacturing overhead.................. 3.60 Variable selling expense ………… 1.80 Fixed selling expense……… 1.20 Total cost per unit $19.20 If the special order is accepted, variable selling costs woul
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.
Your Corporation has received a request for a special order of 6,000 units of its product for $19 each. The product unit cost is as follows:
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Direct materials.........................................
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$6.10
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Direct labor................................................
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4.20
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Variable manufacturing
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2.30
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Fixed manufacturing overhead..................
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3.60
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Variable selling expense …………
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1.80
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Fixed selling expense………
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1.20
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Total cost per unit
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$19.20
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If the special order is accepted, variable selling costs would decrease by 40%. The customer wants the item to be engraved. This involves an additional $2.50 of direct labor per unit. The company will also need to purchase an engraving machine for $12,000. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, what is the impact on the company's overall net operating income?
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