Craik Veneer Case Study

Executive Summary The full costing method associates fixed manufacturing costs with units of production and the amount of fixed manufacturing cost offset against revenue varies with the relationship between the number of units produced and the number sold. If production temporarily exceeds unit sales, some fixed manufacturing costs are deferred to future periods, and responsibility margin will be higher than would be reported under variable costing. If fewer units are produced during the period than …

…are sold and shipped as fast as they were produced, which was not the case because the price of backs is not stable and a selling price of $25 per thousand feet is not quite the price the market is willing to take. This is evidenced by the accumulation of heavy inventory of backs. On the other hand, net profits remains positive whether the sales value or the by-product costing method was used for allocating cost.