Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit:Manufacturing:Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15Variable manufacturing overhead . . . . . . . . . . . . . . $5Variable selling and administrative . . . . . . . . . . . . . . . $2Fixed costs per year:Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . $250,000Fixed selling and administrative expenses . . . . . . . . $80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit.Required:1. Assume the company uses variable costing:a. Compute the unit product cost for Year 1 and Year 2.b. Prepare an income statement for Year 1 and Year 2.2. Assume the company uses absorption costing:a. Compute the unit product cost for Year 1 and Year 2.b. Prepare an income statement for Year 1 and Year 2.3. Explain the difference between variable costing and absorption costing net operating income in Year 1. Also, explain why the two net operating incomes differ in Year 2.
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.
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
Variable costs per unit:
Manufacturing:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
Variable manufacturing overhead . . . . . . . . . . . . . . $5
Variable selling and administrative . . . . . . . . . . . . . . . $2
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . $250,000
Fixed selling and administrative expenses . . . . . . . . $80,000
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Explain the difference between variable costing and absorption costing net operating income in Year 1. Also, explain why the two net operating incomes differ in Year 2.
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