The Lexington Company produces gas grills. This year’s expected production is 20,000 units. Currently, Lexington makes the side burners for its grills. Each grill includes two side burners. Lexington’s management accountant reports the following costs for making the 40,000 burners: Cost per Unit Cost for 40,000 units Direct materials $8.00 $320,000 Direct manufacturing labor 4.00 160,000 Variable manufacturing overhead 2.00 80,000 Inspection, setup, materials handling 8,000 Machine rent 12,000 Allocated fixed costs of plant administration, taxes, and insurance 80,000 Total costs $660,000 Lexington has received an offer from an outside vendor to supply any number of burners Lexington requires at $14.80 per burner. The following additional information is available: Inspection, setup, and materials-handling costs vary with the number of batches in which the burners are produced. Lexington produces burners in batch sizes of 1,000 units. Lexington will produce the 40,000 units in 40 batches. Lexington rents the machine it uses to make the burners. If Lexington buys all of its burners from the outside vendor, it does not need to pay rent on this machine. If Lexington purchases the burners from the outside vendor, the facility where the burners are currently made will remain idle. The allocated fixed plant administration, taxes, and insurance will not change. Q1-1. Describe the decision for Lexington to make. Q1-2. List all alternatives that Lexington can take regards to the 40,000 burners. Q1-3. Evaluate the alternatives. Show your calculations and clearly identify relevant costs information. Q1-4. What are qualitative factors that Lexington should consider when deciding whether to outsource?
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.
The Lexington Company produces gas grills. This year’s expected production is 20,000 units. Currently, Lexington makes the side burners for its grills. Each grill includes two side burners. Lexington’s
|
|
Cost per Unit |
Cost for 40,000 units |
|
Direct materials |
$8.00 |
$320,000 |
|
Direct manufacturing labor |
4.00 |
160,000 |
|
Variable manufacturing |
2.00 |
80,000 |
|
Inspection, setup, materials handling |
|
8,000 |
|
Machine rent |
|
12,000 |
|
Allocated fixed costs of plant administration, taxes, and insurance |
|
80,000 |
|
Total costs |
|
$660,000 |
Lexington has received an offer from an outside vendor to supply any number of burners Lexington requires at $14.80 per burner. The following additional information is available:
- Inspection, setup, and materials-handling costs vary with the number of batches in which the burners are produced. Lexington produces burners in batch sizes of 1,000 units. Lexington will produce the 40,000 units in 40 batches.
- Lexington rents the machine it uses to make the burners. If Lexington buys all of its burners from the outside vendor, it does not need to pay rent on this machine.
- If Lexington purchases the burners from the outside vendor, the facility where the burners are currently made will remain idle. The allocated fixed plant administration, taxes, and insurance will not change.
Q1-1. Describe the decision for Lexington to make.
Q1-2. List all alternatives that Lexington can take regards to the 40,000 burners.
Q1-3. Evaluate the alternatives. Show your calculations and clearly identify relevant costs information.
Q1-4. What are qualitative factors that Lexington should consider when deciding whether to outsource?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
