Difference in Profits between two methods of costing.
ABC Company has one machine on which it can produce either of two products, Y or Z. Sales demand is unlimited for both products at current prices. Product Y requires 1 hour of machine time per unit of output and Product Z requires 2 hours of machine time per unit of output. The following information summarizes the per-unit costs of products Y and Z.
|
|
Y
|
Z
|
|
Selling price
|
$75
|
$80
|
|
DM
|
30
|
5
|
|
DL
|
20
|
10
|
|
VOH
|
10
|
20
|
|
FOH
|
5
|
30
|
a) Based a variable costing approach, how would you maximize profits? Support your answer.
b) Based on a throughput costing approach, how would you maximize profits? Support your answer.
c) Which costing method above provides the best answer to the profit maximization problem and why.