Superior Manufacturing Company
- Theme: cost behavior (variable and fixed costs), relevant costs, deciding whether to keep or drop a product line. - Key Takeaways:
o Manufacturing costs include all costs incurred under the factory roof. Full-costing means assigning all costs incurred under the factory roof to the product so that it can be capitalized appropriately (put on the balance sheet as an asset). o Standard costing = planning/ budgeting by assigning last year’s (or a historical) cost to items and adjusting for any expected increases or decreases. o In the short term, when fixed costs cannot be changed, variable costs are the key for decisions. o When deciding whether to keep or drop a product line, determine which costs are both direct and/or variable because those are the only ones that would be eliminated by dropping the product line. If the selling price is above the direct, variable costs, the product should be continued in the short term. o Fixed costs per unit are only valid at a certain number of units; the company was using fixed costs per unit and calling them standard costs. They were then multiplying their standard per unit costs by the total number of units sold to find total standard costs. This was a problem because at a lower number of units last year, fixed costs per unit were above what they would have been this year so the total standard cost came out significantly above actual costs even though they hadn’t improved profitability.
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