Question

JT Engineering makes widgets. Widgets first go through the Smelting Department and then go through the Polishing Department. Recent process improvements have enabled JT to increase its output in both departments. How will this impact JT’s manufacturing costs for the period?

A : It will cause manufacturing costs to decrease in the Smelting Department and increase in the Polishing Department.

B : It will cause manufacturing costs in both departments to increase.

C : It will cause manufacturing costs to increase in the Smelting Department and decrease in the Polishing Department.

D : It will cause manufacturing costs in both departments to decrease.

Answer 1

Answer is D: It will cause manufacturing costs in both departments to decrease

When output increases the fixed manufacturing overheads will get absorbed by more output. Hence fixed manufacturing cost per unit will be decrease. The Direct material cost and direct labor cost is not affected at per unit level with increase in output since they are variable cost and they vary directly in relation to production. Hence the manufacturing cost per unit will decrease due to fixed manufacturing overheads getting absorbed by more output. Manufacturing costs will not increase because of increase in output. Since both departments will have fixed manufacturing overheads to be charged to process manufacturing cost per unit will decrease for both the departments.

So answer is D