Which product should be produced to maximize profits? Given the capacity constraint, determine which product the company should make and what total monthly contribution margin the company would earn by making only that product. How much would the selling price of the next most profitable (per machine hour) product have to rise to be as profitable as the product you selected in item 2?
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.
Robinsons Company makes three products, all of which require the use of a special machine. Only 200 hours of machine time are available per month. Data for the three products are as a follow. Winston can sell as much of any product as it can make.
| Product 1 | Product 2 | Product 3 | |
| Selling Price | P12 | P16 | P21 |
| Variable Cost | 7 | 8 | 10 |
| Contribution Margin | P5 | P8 | P11 |
| Machine time required in min. | 6 | 10 | 15 |
Required:
- Which product should be produced to maximize profits?
- Given the capacity constraint, determine which product the company should make and what total monthly contribution margin the company would earn by making only that product.
- How much would the selling price of the next most profitable (per machine hour) product have to rise to be as profitable as the product you selected in item 2?
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