Walston Company produces kitchen cabinets for homebuilders across the western United States. The cost of producing 5,000 cabinets is as follows. Materials $ 500,000 Labor 250,000 Variable overhead 100,000 Fixed overhead 400,000 Total $1,250,000 Walston also incurs selling expenses of $20 per cabinet. Wellington Corp. has offered Walston $165 per cabinet for a special order of 1,000 cabinets. The cabinets would be sold to homebuilders in the eastern United States and thus would not conflict with Walston's current sales. Selling expenses per cabinet would be only $5 per cabinet. Walston has available capacity to do the work. Instructions Prepare an incremental analysis for the special order. Should Walston accept the special order? Why or why not?
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.
- Walston Company produces kitchen cabinets for homebuilders across the western United States. The cost of producing 5,000 cabinets is as follows.
|
Materials |
$ 500,000 |
|
Labor |
250,000 |
|
Variable |
100,000 |
|
Fixed overhead |
400,000 |
|
Total |
$1,250,000 |
Walston also incurs selling expenses of $20 per cabinet. Wellington Corp. has offered Walston $165 per cabinet for a special order of 1,000 cabinets. The cabinets would be sold to homebuilders in the eastern United States and thus would not conflict with Walston's current sales. Selling expenses per cabinet would be only $5 per cabinet. Walston has available capacity to do the work.
Instructions
- Prepare an incremental analysis for the special order.
- Should Walston accept the special order? Why or why not?
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