Estes Company has been manufacturing its own wheels for its scooters. The company is presently operating at full capacity. The accounting department usually charge variable manufacturing overhead to production at the rate of 30% of direct labor cost. The direct materials per unit to make the wheels is P1,500 while the related direct labor cost for the wheel production is at P1,800 per unit. Normal production of Estes Company is 250,000 wheels per annum
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.
Estes Company has been manufacturing its own wheels for its scooters. The company is presently operating at full capacity. The accounting department usually charge variable manufacturing
A third party supplier offers to outsource and make the wheels for P4,000 per wheel. If the Estes Company accepts the offer from the supplier, P42,000 worth of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products in their portfolio. What is the impact to net income if Estes Company decides to purchase from the third party supplier?
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