- Develop a list of inputs along with their associated costs, such as labor, materials, and overhead. You can research this information, make it up, or do a combination of both. Be specific as to costs.
- You are to determine the selling price. Show your calculations, and discuss why you have determined this to be a good sale price.
- How many items of your product will you need to produce to meet this sale price? How did you calculate this?
- Determine which of the costing systems discussed in this class will work best for your company. Explain why.
- Explain why those not chosen were not a good fit for your company.
- You must explain "why not chosen" for a minimum of 3 costing methods.
- Please devote at least 1 paragraph to the ethical considerations of costing methods.
- Add a section to your paper, outlining how you would implement capital budgeting in your company.
- Prepare an example of a decision that you would make using either the IRR or Payback method of analysis. Why would you use this for your business
Explanation & Answer
Considering Illumine Systems Company which basically deal with the development, production, and sell
of widgets. The company was incorporated and developed by a photographer and a musician in St.
Louis. The product produced by this company is primarily used in lighting and sound equipment. These
equipment may be used in theaters, concerts, and other related events. The associated cost of
production were prepared using the absorption costing method. This costing method accumulates the
costs that are associated with the production process of the widgets and apportions them to individual
products. The product absorbs both the variable and fixed costs. Absorption costing has four major
components; direct materials, direct labor, variable manufacturing overheads, and fixed manufacturing
Illumine Systems Company Standard Cost Card
variable manufacturing overheads
Total Variable costs
fixed manufacturing overheads
Total production costs
The total cost of producing a single unit of widget is $400. When setting up the price of the widget it
used the mark-up method, where the company determined the profit it anticipates to get and then adds
the manufacturing cost. The company policy is to have a mark-up of 150% over and above the total cost
Selling price calculation
Total production costs = 400
Mark-up percent = 150%
The gross mark-up (profit) = 400 × 150% = 600
Selling price = mark-up + total cost of production
Selling price = 600 + 400 = 1,000
The price has been determined through the method of mark-up which is one of the common methods
applied by companies when setting their selling prices. The company determines the mark-up or the
profit they would want to achieve when they sell their products. Once the mark-up has been
determined the total cost is used as the start point for setting the prices. The company compares the
prevailing prices with those in the market. If it happens the prices are higher than the prevailing market
prices, the company revises the production costs in order to achieve a relatively lower price. The markup price setting strategy is favorable as it is not complex and allows room for adjustment. The selling
price is comparable with the current widget market prices thus allowing Illumine Systems Company to
compete in the market segment as well as the electronics industry. The price also allows the company to
be competitive in the global market with similar products to those of Illumine Systems Company. The
management team responsible for...