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Assignment on Calculation of Cost Per Unit

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Added on  2019-11-26

Assignment on Calculation of Cost Per Unit

   Added on 2019-11-26

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Solution:(a)Calculation of the cost per unit of producing the canisters under thetraditional approachParticularsAmount ($)Direct material 300,000.00 Direct labour (12,000*15) 180,000.00 Variable overhead (12,000*10) 120,000.00 Fixed overhead (12,000*45) 540,000.00 Total Cost 1,140,000.00 No. of Units 760,000.00 Cost per unit 1.50 The cost per unit of producing the canisters under the traditional approach is $ 1.50.(b)Calculation of the cost of purchasing the canistersParticularsAmount ($)Cost of purchase$1 No. of units760,000Total purchase cost$760,000 Add: Unavoidable fixed costs (540,000-80,000-28,000)$432,000 Total costs$1,192,000 Cost per unit$1.57 The cost of purchase is $1.57 whereas the cost to manufacture is $1.50. So, thecompany should manufacture the canisters.(c)Analysis of special offerParticulars Amount ($) Direct material (20,000*300,000/760,000) 7,895 Direct labour (20,000*180,000/760,000) 4,737 Variable overhead (20,000*120,000/760,000) 3,158 Total Cost 15,789 Units 20,000 Cost per unit0.79The offered price for special offer is $1.40 and cost per unit of manufacturing thisspecial offer is $0.79. So, the offer should be accepted.
Assignment on Calculation of Cost Per Unit_1
(d)Other factors that the firm should consider before deciding whether toaccept the order are as below:(i)Alternative Options – Company needs to see if any better option availablein the market or not. If better option is available, company should go forbetter alternative and reject this proposal.(ii)Availability of Raw Material – It is important to consider the sufficient rawmaterial at the existing or lower price in the market before the companyaccept the order. If sufficient raw material is not available or available athigher price, decision regarding acceptance or rejection may change.(iii)Availability of Labour – Like material, availability of sufficient labour at theexisting or lower price needs to be assured before accepting the project.Usually the labour costs increase with the increase in the demand whichmay impact the decision.(iv)Impact on existing business – If the existing customers come to know ofthis new pricing, then they may also demand the price cut from thecompany. This will directly impact the profitability of the company.Therefore a confidentiality clause to this effect is better in such cases.(v)Increase in indirect staff – There may be possibility to hire a new staffpersonal take care of this new project. Company should also consider thecost of this new staff and its related costs (recruitment costs, etc.).(e)Manufacturing of coffee cup or canistersProfit from manufacturing coffee cupsParticulars Amount ($) Direct material0.60Direct labour0.20Variable overhead0.10Fixed overhead0.15Cost per unit1.05Selling Price1.20Profit0.15No. of units 400,000 Total Profit 60,000 Profit from manufacturing canisters
Assignment on Calculation of Cost Per Unit_2

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