The following information relates to the unit product cost for a product manufactured by Nelson Industrial Company: Direct materials: $24 Direct Labor: 15 Variable overhead: 30 Fixed overhead: 18 Unit cost: 87 Line Item Description Cost Direct materials $24 Direct labor 15 Variable overhead 30 Fixed overhead 18 Unit cost $87 In addition, fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 100,000 units for $90 each. If the firm produces the special order, the effect on income would be a(n): a. increase of $1.050,000. b. decrease of $900,000. c. decrease of $1,0500,000. d. increase of $900,000.
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.
Direct materials: $24
| Line Item Description | Cost |
|---|---|
| Direct materials | $24 |
| Direct labor | 15 |
| Variable overhead | 30 |
| Fixed overhead | 18 |
| Unit cost | $87 |
In addition, fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 100,000 units for $90 each.
If the firm produces the special order, the effect on income would be a(n):
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