Variable Overhead
Added on 2019-11-25
9 Pages1533 Words163 Views
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Running head: MANAGEMENT ACCOUNTINGManagement AccountingName of the Student:Name of the University:Author’s Note:
MANAGEMENT ACCOUNTING1Table of Contentsa) Calculating the cost per unit of producing the canisters under the traditional approach:............2b) Depicting whether the company should purchase canister from Canister Company:.................2c) Depicting whether on the financial grounds the special order of 20,000 canisters should beaccepted or not:................................................................................................................................3d) Depicting the factors that need to be evaluated by the firm before deciding whether or not toaccept the 20,000 canisters order:....................................................................................................4e) Depicting whether canisters should be purchased and coffee cups should be manufactured bythe company:....................................................................................................................................4f) Depicting the factors that need to be considered whether deciding for manufacturing thecanisters or purchasing them:..........................................................................................................6References and Bibliography:..........................................................................................................8
MANAGEMENT ACCOUNTING2a) Calculating the cost per unit of producing the canisters under the traditional approach:Traditional Costing MethodParticularsUnitsPer unit priceAmountSales per year 760,000 $ 2.20 $ 1,672,000.00 Direct materials 760,000 $ 0.39 $ 300,000.00 Direct labor 12,000 $ 15 $ 180,000.00 Variable overhead 12,000 $ 10 $ 120,000.00 Fixed overhead 12,000 $ 45 $ 540,000.00 Total Cost760,000$ 1.50 $ 1,140,000.00 Profit 760,000 $ 0.70 $ 532,000.00 The above table mainly depicts the relevant cost per unit of 1.50 per product. This couldeventually help in depicting the relevant cost per unit of producing the relevant canisters.b) Depicting whether the company should purchase canister from Canister Company:Purchasing of canisters from a different companyParticularsUnitsPer unit priceAmountAmountSales per year760,000 $ 2.20 $ 1,672,000.00 Purchase of finished goods 760,000 $ 1.00 $ 760,000.00 Fixed overhead 12,000 $ 45 $ 540,000.00 less supervisors salary $ 80,000.00 less machinery depreciation $28,000.00 $ 432,000.00 Total Cost $ 1,192,000.00 Profit760,000 $0.63 $480,000.00 The overall profit that could be attained if the canisters were purchased and notmanufactured is $480,000. However, if the canisters were manufactured then the overall profitmainly comes to $532,000. Therefore, it is advisable that Playdough Company should continuewith the manufacturing process and ignore the purchase of canisters (Bodie 2013).
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