The Gear Division makes a part with the following characteristics: Production capacity 27,000 units Selling price to outside customers $ 20 Variable cost per unit $ 14 Fixed cost, total $ 102,000 The Motor Division of the same company would like to purchase 11,000 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $19 each. Suppose the Gear Division has ample excess capacity to handle all of the Motor Division's needs without any increase in fixed costs and without impacting sales to outside customers. If the Gear Division refuses to accept the $19 price internally and the Motor Division continues to buy from the outside supplier, the company as a whole will be: Multiple Choice better off by $11,000 each period. worse off by $55,000 each period. worse off by $22,000 each period. worse off by $66,000 each period.
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.
The Gear Division makes a part with the following characteristics:
| Production capacity | 27,000 | units |
|---|---|---|
| Selling price to outside customers | $ 20 | |
| Variable cost per unit | $ 14 | |
| Fixed cost, total | $ 102,000 |
The Motor Division of the same company would like to purchase 11,000 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $19 each.
Suppose the Gear Division has ample excess capacity to handle all of the Motor Division's needs without any increase in fixed costs and without impacting sales to outside customers. If the Gear Division refuses to accept the $19 price internally and the Motor Division continues to buy from the outside supplier, the company as a whole will be:
-
better off by $11,000 each period.
-
worse off by $55,000 each period.
-
worse off by $22,000 each period.
-
worse off by $66,000 each period.
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