90,000 units Beginning inventory, January 1, 2017 Ending inventory, December 31, 2017 34,000 units 2017 sales 433,000 units Selling price (to distributor) Variable manufacturing cost per unit, including direct materials Variable operating (marketing) cost per unit sold Fixed manufacturing costs $24.00 per unit $5.40 per unit $1.20 per unit sold $1,852,200 Denominator-level machine-hours 6,300 Standard production rate Fixed operating (marketing) costs 60 units per machine-hour $1,130,000 Assume standard costs per unit are the same for units in beginning inventory and units produced during the year. Also, assume no price, spending, or efficiency variances. Any production-volume variance is written off to cost of goods sold. Required 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2017. 2. What is Tomlinson's operating income as percentage of revenues under each costing method? 3. Explain the difference in operating income between the two methods. 4. Which costing method would you recommend to the CFO? Why?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Variable versus absorption costing. The Tomlinson Company manufactures trendy, high-quality, moderately priced watches. As Tomlinson’s senior nancial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Tomlinson’s 2017 income statement. The following data are for the year ended December 31, 2017:
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