The Dorset Corporation produces and sells a single product. The following data refer to the year just completed: Beginning inventory 0 Units produced 9,000 Units sold 7,000 Selling price per unit $ 47 Selling and administrative expenses: Variable per unit $ 4 Fixed per year $ 58,000 Manufacturing costs: Direct materials cost per unit $ 10 Direct labor cost per unit $ 6 Variable manufacturing overhead cost per unit $ 5 Fixed manufacturing overhead per year $ 90,000 Assume that direct labor is a variable cost. Required: Prepare an income statement for the year using absorption costing Prepare an income statement for the year using variable costing Reconcile the absorption costing and variable costing net 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.
Question No. 4: Absorption and Marginal Costing
The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:
|
Beginning inventory |
|
0 |
|
Units produced |
|
9,000 |
|
Units sold |
|
7,000 |
|
Selling price per unit |
$ |
47 |
|
Selling and administrative expenses: |
|
|
|
Variable per unit |
$ |
4 |
|
Fixed per year |
$ |
58,000 |
|
|
|
|
|
Direct materials cost per unit |
$ |
10 |
|
Direct labor cost per unit |
$ |
6 |
|
Variable manufacturing overhead cost per unit |
$ |
5 |
|
Fixed manufacturing overhead per year |
$ |
90,000 |
Assume that direct labor is a variable cost.
Required:
- Prepare an income statement for the year using absorption costing
- Prepare an income statement for the year using variable costing
- Reconcile the absorption costing and variable costing net operating income figures
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