This year Burchard Company sold 40,000 units of its only product for $25 per unit. Manufacturing and selling the product required $200,000 of fixed manufacturing costs and $325,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.00 Direct labor (paid on the basis of completed units) . . . . 5.00 Variable overhead costs . . . . . . . . . . . . . . . . . . $1.00 Variable selling and administrative costs . . . . . 0.50 Next year the company will use a new material, which will reduce material costs by 50% and direct labor costs by 60% and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory’s output is nearing its annual output capacity of 45,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 20%. This plan will decrease unit sales volume by 10%. Under both plans, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same. Required 1. Compute the break-even point in dollar sales for (a) plan 1 and (b) plan 2. 2. Prepare a forecasted contribution margin income statement with two columns showing the expected results of plan 1 and plan 2. The statements should report sales, total variable costs, contribution margin, total fixed costs, income before taxes, income taxes (30% rate), and net income.
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.
This year Burchard Company sold 40,000 units of its only product for $25 per unit. Manufacturing and
selling the product required $200,000 of fixed
administrative costs. Its per unit variable costs follow.
Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.00
Direct labor (paid on the basis of completed units) . . . . 5.00
Variable overhead costs . . . . . . . . . . . . . . . . . . $1.00
Variable selling and administrative costs . . . . . 0.50
Next year the company will use a new material, which will reduce material costs by 50% and direct labor
costs by 60% and will not affect product quality or marketability. Management is considering an increase
in the unit selling price to reduce the number of units sold because the factory’s output is nearing its
annual output capacity of 45,000 units. Two plans are being considered. Under plan 1, the company will
keep the selling price at the current level and sell the same volume as last year. This plan will increase
income because of the reduced costs from using the new material. Under plan 2, the company will increase
the selling price by 20%. This plan will decrease unit sales volume by 10%. Under both plans, the total
fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain
the same.
Required
1. Compute the break-even point in dollar sales for (a) plan 1 and (b) plan 2.
2. Prepare a
results of plan 1 and plan 2. The statements should report sales, total variable costs, contribution margin,
total fixed costs, income before taxes, income taxes (30% rate), and net income.
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