The Cake Factory uses a standard costing system in order to promote efficiency in its giant doughnut manufacturing process. Company data for the year 2021: Standard quantity of dough per doughnut 0.50 kilograms Standard rate per kilogram of dough $ 0.50 Standard baking labor rate per baking hour $12.00 per hour Standard baking hours per doughnut 0.25 hours Expected Production Output 4000 units Actual Production Output Achieved 3500 units Fixed Overhead Rate (Based on expected production) $1.00 per unit Variable marketing $1.00 per unit Fixed Marketing $10,000.00 Variable Overhead Rate per doughnut $ 0.60 per doughnut Actual Unit Variable Costs of Production $ 4.04 Actual and Budgeted Fixed Costs of Production $4000.00 Selling Price $10.00 Beginning Finished Goods Inventory 0 units Beginning WIP 0 units Ending WIP 0 units Units Sold 3000 units Required: Prepare, applying standard costs, an absorption costing income statement adjusting cost of goods sold for all manufacturing cost variances. What are the potential implications of using absorption costing income for evaluating the production manager's performance? What controls or measures can the controller implement to minimize or eliminate the concerns outlined in requirement 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.
The Cake Factory uses a
Company data for the year 2021:
Standard quantity of dough per doughnut 0.50 kilograms
Standard rate per kilogram of dough $ 0.50
Standard baking labor rate per baking hour $12.00 per hour
Standard baking hours per doughnut 0.25 hours
Expected Production Output 4000 units
Actual Production Output Achieved 3500 units
Fixed
Variable marketing $1.00 per unit
Fixed Marketing $10,000.00
Variable Overhead Rate per doughnut $ 0.60 per doughnut
Actual Unit Variable Costs of Production $ 4.04
Actual and Budgeted Fixed Costs of Production $4000.00
Selling Price $10.00
Beginning Finished Goods Inventory 0 units
Beginning WIP 0 units
Ending WIP 0 units
Units Sold 3000 units
Required:
- Prepare, applying standard costs, an absorption costing income statement adjusting cost of goods sold for all
manufacturing cost variances.
- What are the potential implications of using absorption costing income for
evaluating the production manager's performance?
- What controls or measures can the controller implement to minimize or eliminate the concerns outlined in requirement 2?
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