Required: a. Compute the unit product cost under both absorption and variable costing. b. Prepare an income statement for the year using absorption costing. c. Prepare a contribution format income statement for the year using variable costing.
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.
Q1
Moona Inc. produces Mobile phones. Information of the company's operations last year appear below:
Fixed cost:
Fixed Manufacturing overhead Rs 40,000
Fixed Selling & Administrative Rs 60,000
Selling Price per unit Rs 100
Variable cost per unit:
Direct Materials Rs 30
Direct labor Rs 10
Variable Manufacturing overhead Rs 5
Variable Selling & Administrative Rs 2
Units In beginning Inventory 0
Units Produced 2000
Units Sold 1900
Required:
a. Compute the unit product cost under both absorption and variable costing.
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Prepare a report reconciling the difference in net operating income between absorption and variable costing for the year.
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