customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customer’s desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $420 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order? Garrison 17e Rechecks 2020-09-29 Multiple Choice
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.
Assume a company manufactures many products, one of which normally sells for $48 per unit. The company’s accounting system reports the following unit product cost for this product:
| Per Unit | ||||
| Direct materials | $ | 18 | ||
| Direct labor | 12 | |||
| Manufacturing overhead | 10 | |||
| Total cost | $ | 40 | ||
The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range.
A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customer’s desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $420 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?
Garrison 17e Rechecks 2020-09-29
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$900
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$(1,620)
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$480
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$(300)
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