Plainfield Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured per year by Plainfield are as follows: Direct materials $ 2 Direct labor 15 Variable overhead 7 Fixed overhead 11 $ 35 Verona Company has offered to sell Plainfield 10,000 units of part G for $25 per unit. If Plainfield accepts Verona's offer, the released facilities could be used to save $42,000 in relevant costs in the manufacture of part H. In addition, $4 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount? Alternative Amount A) Manufacture $ 10,000 B) Manufacture $ 52,000 C) Buy $ 72,000 D) Buy $ 102,000 E) Buy $ 10,000
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.
Plainfield Company manufactures part G for use in its production cycle. The full cost per unit for each of 10,000 units of part G manufactured per year by Plainfield are as follows:
| Direct materials | $ | 2 |
| Direct labor | 15 | |
| Variable |
7 | |
| Fixed overhead | 11 | |
| $ | 35 | |
Verona Company has offered to sell Plainfield 10,000 units of part G for $25 per unit. If Plainfield accepts Verona's offer, the released facilities could be used to save $42,000 in relevant costs in the manufacture of part H. In addition, $4 per unit of the fixed overhead applied to part G would be eliminated. Based solely on a short-term financial analysis, which alternative is more desirable and by what amount?
| Alternative | Amount | ||
| A) | Manufacture | $ | 10,000 |
| B) | Manufacture | $ | 52,000 |
| C) | Buy | $ | 72,000 |
| D) | Buy | $ | 102,000 |
| E) | Buy | $ | 10,000 |
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