The Discount Drug Company has three major product lines: drugs, cosmetics, and housewares. The company provides the following sales and cost information for the month of May for the store in total and for each separate product line (000 omitted): Drug Cosmetics Housewares Total Sales $240 $ 300 $360 $ 900 Less: Variable expenses 160 180 200 540 CM $ 80 $120 $160 $360 Less: Fixed costs Salaries $34 $40 $46 $120 Advertising 30 50 40 120 Other fixed costs 40 20 40 100 Total $104 $110 $126 $340 Net income $(24) $10 $34 $20 The salaries represent wages paid to employees engaged directly in each product line area. Besides, the advertising represents direct advertising of each product line, and is avoidable if the line is dropped. Other fixed costs, which are all committed costs, will continue and will split equally between cosmetics and housewares. Prepare a combined income statement for cosmetics and housewares on the assumption that drugs are discontinued with no effects on sales of the other product lines. On the basis of the analysis in question 1, would you advise dropping the drugs line?
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.
- The Discount Drug Company has three major product lines: drugs, cosmetics, and housewares. The company provides the following sales and cost information for the month of May for the store in total and for each separate product line (000 omitted):
|
|
Drug |
Cosmetics |
Housewares |
Total |
|
Sales |
$240 |
$ 300 |
$360 |
$ 900 |
|
Less: Variable expenses |
160 |
180 |
200 |
540 |
|
CM |
$ 80 |
$120 |
$160 |
$360 |
|
Less: Fixed costs |
|
|
|
|
|
Salaries |
$34 |
$40 |
$46 |
$120 |
|
Advertising |
30 |
50 |
40 |
120 |
|
Other fixed costs |
40 |
20 |
40 |
100 |
|
Total |
$104 |
$110 |
$126 |
$340 |
|
Net income |
$(24) |
$10 |
$34 |
$20 |
The salaries represent wages paid to employees engaged directly in each product line area. Besides, the advertising represents direct advertising of each product line, and is avoidable if the line is dropped. Other fixed costs, which are all committed costs, will continue and will split equally between cosmetics and housewares.
- Prepare a combined income statement for cosmetics and housewares on the assumption that drugs are discontinued with no effects on sales of the other product lines.
- On the basis of the analysis in question 1, would you advise dropping the drugs line?
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