Steve company produces 30000 units of parts each year for use on its production line. The cost per units of the part S6: Direct material $3.60 Direct labor $10.00 Variable manufacturing overhead $2.40 Fixed manufacturing overhead $9.00 Total cost per part$25.00 An outside supplier has offered to sell 30000 units of the part each year at a product company at $21.00 per part. If the products company accepts this offer, the facilities now being used to manufacturer the parts could be rented by another company at the annual rent of $80,000.00. However, the products have determined that two-thirds of the fixed manufacturing overhead being applied to the part would continue even if the part S6 was purchased by an outside supplier. What is the advantage or disadvantage of accepting the outside supplier's offer? and how much ?
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.
Steve company produces 30000 units of parts each year for use on its production line. The cost per units of the part S6:
Direct material $3.60
Direct labor $10.00
Variable manufacturing
Fixed manufacturing overhead $9.00
Total cost per part$25.00
An outside supplier has offered to sell 30000 units of the part each year at a product company at $21.00 per part. If the products company accepts this offer, the facilities now being used to manufacturer the parts could be rented by another company at the annual rent of $80,000.00.
However, the products have determined that two-thirds of the fixed manufacturing overhead being applied to the part would continue even if the part S6 was purchased by an outside supplier.
What is the advantage or disadvantage of accepting the outside supplier's offer? and how much ?
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