The Thompson Company Uses Activity-Based Costing to Determine Product Cost

question 55

Essay

The Thompson Company uses activity-based costing to determine product cost. Three activities and their rates have been calculated as shown below.
Thompson provided the following data from the job order cost sheet for Job #345

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Definitions:

Target Income

The profit amount that a company aims to achieve within a specific period.

Required Sales

The volume of sales necessary to achieve a specific financial objective, such as covering costs or reaching a target profit.

Contribution Margin

It is the amount by which sales revenue exceeds variable costs. It contributes towards covering fixed costs and generating profit.

Variable Expenses

Costs that vary in direct proportion to changes in an activity level or volume, such as sales commissions.