We Can Reach It produces ladders for household use. The company makes two types: step ladders and 12-foot adjustable ladders. Demand for the products is so high that We Can Reach It can sell as many of each size as it can produce. The company uses the same machinery to produce both products. The machinery can only run for 1,990 hours per period. We Can Reach It can produce 12, 12-foot ladders every hour, whereas it can produce 16 step ladders in the same amount of time. Fixed costs amount to $120,800 per period. Sales prices and variable costs are as follows: Step ladder 12-foot ladder Sales price per unit $21.70 $37.00 Variable cost per unit $8.75 $23.30 Contribution Margin per unit 1. Calculate the Contribution Margin per machine hour. Step ladder 12-foot ladder Ladders produced per hour Contribution margin per ladder type Contribution margin per machine hour 2. To maximize profit, which product should they emphasize: 3. What will the company's operating income be? We Can Reach It Sales Revenue Variable Costs Contribution Margin Fixed Costs Operating 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.
Sales prices and variable costs are as follows:
| Step ladder | 12-foot ladder | |
|---|---|---|
| Sales price per unit | $21.70 | $37.00 |
| Variable cost per unit | $8.75 | $23.30 |
| Contribution Margin per unit |
1. Calculate the Contribution Margin per machine hour.
| Step ladder | 12-foot ladder | |
|---|---|---|
| Ladders produced per hour | ||
| Contribution margin per ladder type | ||
| Contribution margin per machine hour |
2. To maximize profit, which product should they emphasize:
3. What will the company's operating income be?
We Can Reach It
| Sales Revenue | |
|---|---|
| Variable Costs | |
| Contribution Margin | |
| Fixed Costs | |
| Operating Income |
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