EXERCISE 6–1 Variable and Absorption Costing Unit Product Costs LO6–1 Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $850. Selected data for the company's operations last year follow: Units in beginning inventory. Units produced .... Units sold ..... Units in ending inventory. 250 225 25 Variable costs per unit: Direct materials ... Direct labor $100 $320 $40 $20 Variable manufacturing overhead . Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative $60,000 $20,000
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.
Refer to the data in Exercise 6–1 for Ida Sidha Karya Company. The absorption costing income statement prepared by the company’s accountant for last year appears as shown:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,250
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,500
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,750
Selling and administrative expense . . . . . . . . . . . . . 24,500
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,250
Required:
1. Under absorption costing, how much fixed
2. Prepare an income statement for last year using variable costing. Explain the difference in net operating income between the two costing methods.
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