Purchase Solution

Why do companies account for fixed costs on a per unit basis

Not what you're looking for?

Ask Custom Question

Applying fixed costs to products seems to cause all kind of problems. Why do companies continue to use accounting systems that assign fixed costs to products on a per unit basis?

Purchase this Solution
Solution Summary

The 331 word solution gives three main reasons why companies allocate fixed costs on a unit basis, and then provides some consequences or reasons to work through the process.

Solution Preview

There are several reasons to allocate fixed costs to products on a per unit basis:

1. To help calculate the selling price of each unit. Using a simple example of rent as a fixed cost, it is important to know that the price of each unit will contribute enough for the company to be able to pay the rent. Let's say the factory rent is $10,000 per month, and the company normally produces 10,000 units per month. That means that the selling price of a single unit must include enough gross ...

Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

View More Free Quizzes
Related BrainMass Solutions

  • Managerial Accounting

    Customer service--hiring a subcontractor to do customer repair visits on an annual retainer basis rather than a per-visit basis. 3-13 "There is no such thing as a fixed cost. All costs can be "unfixed" given sufficient time'. Do you agree?

  • Business Accounts Issue

    Give a name for an expanded contribution margin income statement. Discussion questions: Are we using actual or estimated costs for planning purposes? Why do companies allocate costs?

  • Cost accounting

    Why might the July 2008 information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August 2008?

  • Absorption costing and marginal costing

    We are told that £4,000 worth of fixed production overheads per month were absorbed on the basis of 2,000 units. So the fixed overhead absorption rate can be calculated and the standard cost per unit using absorption costing can be established.

  • Managerial Accounting

    Calculate the total manufacturing costs and the cost per unit of the windows produced during the month of march c. compare the per unit cost figures calculated in parts a and b. which approach do you think provides better information for manufacturing

  • Accounting problems

    The direct-labor cost of $37 per unit? Why? b. The fixed manufacturing overhead costs of $600,000? Why? c. The fixed selling and administrative cost of $860,000? Why? d. The average unit cost of production? Why?

  • Outsourcing versus insourcing

    If it is outsourced, a supplier has offered to make it for an annual fixed cost of $200,000 and a variable cost of $1.80 per unit in variable costs.

  • Discussion questions

    Fixed manufacturing overhead is a fixed cost and so changes on a per unit basis as the production changes. If we produce more, fixed manufacturing overhead on a per unit basis would decline and so the total cost of product is lower.

  • Cost accounting problems

    A) Total fixed costs. B) Per unit fixed costs. C) Total variable costs. D) Per unit variable costs. 22. In the cost equation TC = F + VX, F is best described as the: A) slope of the equation.

View More Related Solutions