Taylor Electronics, Inc. (TEI), has been approached by a new customer who wants to place a one-tirme order for a component similar to one that TEI makes for another custorner. Existing sales will not be affected by acceptance of this order. TEI has a policy of setting its targeted selling price at 60 percent over full manufacturing cost. The manufacturing costs and the targeted selling price for the component currently being made are as follows: Direct materials Direct labor $ 2.30 3.60 Variable manufacturing overhead (75% of direct labor cost) Fixed manufacturing overhead (150% of direct labor cost) Total manufacturing cost Markup (60% of full manufacturing cost) Targeted selling price 2.70 5.40 $14.00 8.40 $22.40 TEI has excess capacity to produce the quantity of the component desired by the new customer. The direct materials used in the component for the new customer would cost the manufacturer $.25 less than those in the component currently being made. The variable selling expenses (packaging and shipping) would be the same as for the component currently being made, or $.90 per unit.
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.
What is the minimum unit price at which TEI would be willing to accept the special order?
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