Doom Bhd manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials RM 7 Direct labour RM 10 Variable manufacturing overhead RM 5 Variable selling and administrative overhead RM 3 Total variable cost per unit RM 25 Fixed costs per month: Fixed manufacturing overhead RM315,000 Fixed selling and administrative overhead RM245,000 RM560,000 The product sells for RM60 per unit. Production and sales data for July and August, that is, the first two months of operations, follow: Units produced Units sold July 17,500 15,000 August 17,500 20,000 The company’s Accounting Department has prepared an absorption costing income statement for July and August as presented below: July August Sales RM 900,000 RM 1,200,000 (-) Cost of goods sold (RM 600,000) (RM 800,000) Gross margin RM 300,000 RM 400,000 (-) Selling and administrative expenses (RM290,000) (RM 305,000) Net operating income RM10,000 RM 95,000 As a cost accountant, you would like to suggest that the company use variable costing in order to help the decision-making process. Due to that, you are required to prepare a report to indicate the differences of the two reporting income statements. Your report should consist of the income statement for variable costing and computation the unit product cost under absorption and 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.
Doom Bhd manufactures and sells a single product. Cost data for the product are given
below:
Variable costs per unit:
Direct materials RM 7
Direct labour RM 10
Variable manufacturing
Variable selling and administrative overhead RM 3
Total variable cost per unit RM 25
Fixed costs per month:
Fixed manufacturing overhead RM315,000
Fixed selling and administrative overhead RM245,000
RM560,000
The product sells for RM60 per unit. Production and sales data for July and August, that is,
the first two months of operations, follow:
Units produced Units sold
July 17,500 15,000
August 17,500 20,000
The company’s Accounting Department has prepared an absorption costing income statement
for July and August as presented below:
July August
Sales RM 900,000 RM 1,200,000
(-) Cost of goods sold (RM 600,000) (RM 800,000)
Gross margin RM 300,000 RM 400,000
(-) Selling and administrative expenses (RM290,000) (RM 305,000)
Net operating income RM10,000 RM 95,000
As a cost accountant, you would like to suggest that the company use variable costing in order
to help the decision-making process. Due to that, you are required to prepare a report to indicate
the differences of the two reporting income statements. Your report should consist of the
income statement for variable costing and computation the unit product cost under absorption
and variable costing.
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