Unit 3 Activity Based Costing and Process Costing Individual Project

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Unit 3- Activity Based Costing and Process Costing Unit 3 Individual Project By: Brenda Ward AIU-Online November 27, 2012 Currently Ski Pro Corporation has decided to produce cross-country skis. The ski selected is a mass-market ski with a special binding. The sale price of the skis will be $80.00 to wholesalers throughout the United States. Due to available capacity no additional fixed charges will be incurred to produce the skis, however, a $100,000 fixed charge will be absorbed by the skis to allocate a fair share of the company’s present fixed costs to the new product. The estimated sales and production of 10,000 pairs of skis as the expected volume, the accounting department has developed the following cost per pair: Direct Labor $35.00 Direct Material $30.00 Total Overhead $15.00 Total Cost $80.00 Under this scenario the company will have no profit, but no loss. In order to continue production during the off season, keeping employees working this scenario of breakeven will provide the company with the ability to continue production. Ski Pro has obtained a purchase price from a subcontractor for the bindings. The accounting department provided a predicted savings of 10% for direct labor and variable overhead cost with a 20% savings on the direct material cost. Under this scenario, as you seen on the spreadsheet provided, the company will make a profit of $.50 per ski. With sales of 10,000 pair of skis the company would make a profit of $5,000.00. The production staff will still produce the skis, just not the bindings. In this scenario the company will increase profits, continue to keep employees working and happy and make a profit for the sale of the skis with the purchased bindings. If the company were to increase the sales of the skis to 12,500 they would need to rent additional equipment that would cost an annual fixed rate of

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