Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct materials (3 lbs. @ 1.40) $4.20 Direct labor (0.4 hr. @ 17.50) 7.00 Variable overhead (0.4 hr. @ 5.00) 2.00 Fixed overhead (0.4 hr. @ 6.00) 2.40 Total $15.60 Selling and administrative costs: Variable $1.70 per unit Fixed $221,000 During the year, the company had the following activity: Units produced 26,000 Units sold 23,400 Unit selling price $36 Direct labor hours worked 10,400 Actual fixed overhead was $11,200 less than budgeted fixed overhead. Budgeted variable overhead was $5,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: 1. Compute the unit cost using (a) absorption costing and (b) variable costing. Unit Cost Absorption costing Variable costing 2. Prepare an absorption-costing income statement. Round your answers to the nearest cent. Flaherty, Inc.Absorption-Costing Income StatementFor the First Year of Operations Sales Cost of Goods Sold Less: Overapplied Overhead Gross profit Operating income
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.
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:
| Direct materials (3 lbs. @ 1.40) | $4.20 | |
| Direct labor (0.4 hr. @ 17.50) | 7.00 | |
| Variable overhead (0.4 hr. @ 5.00) | 2.00 | |
| Fixed overhead (0.4 hr. @ 6.00) | 2.40 | |
| Total | $15.60 | |
| Selling and administrative costs: | ||
| Variable | $1.70 | per unit |
| Fixed | $221,000 |
During the year, the company had the following activity:
| Units produced | 26,000 | |
| Units sold | 23,400 | |
| Unit selling price | $36 | |
| Direct labor hours worked | 10,400 |
Actual fixed overhead was $11,200 less than budgeted fixed overhead. Budgeted variable overhead was $5,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.
Required:
1. Compute the unit cost using (a) absorption costing and (b) variable costing.
| Unit Cost | |
| Absorption costing | |
| Variable costing |
2. Prepare an absorption-costing income statement. Round your answers to the nearest cent.
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Sales
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Cost of Goods Sold
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| Less: | ||
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Overapplied Overhead
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| Gross profit | ||
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| Operating income |
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