ing these mechanisms at full capacity are as follows. Variable costs per unit: Direct materials $ 14 Direct labor 12 Variable manufacturing overhead 4 Fixed costs per month: Fixed manufacturing overhead $ 10,000
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.
Olson manufactures and sells 5,000 gun cabinets each month. A principal component part in each cabinet is a lock mechanism to keep them secure. Olson’s plant currently has the monthly capacity to produce 8,000 lock mechanisms. The costs of manufacturing these mechanisms at full capacity are as follows.
| Variable costs per unit: | |||
| Direct materials | $ | 14 | |
| Direct labor | 12 | ||
| Variable manufacturing |
4 | ||
| Fixed costs per month: | |||
| Fixed manufacturing overhead | $ | 10,000 | |
Security Cases has offered to buy 3,000 lock mechanisms per month from Olson for use in its fireproof cases.
Compute the following.
a. The average unit cost of manufacturing each lock mechanism assuming that Olson manufactures only enough locks for its own gun cabinets.
b. The incremental unit cost of producing one additional lock mechanism.
c. The per-unit sales price that Olson should charge to earn $12,000 in monthly pretax profit on sales made to Security Cases.
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