During its first year of operations, a company produced 275,000 units and sold 250,000 units. The following costs were incurred during the year: Variable costs per unit Direct materials $15.00 Direct labor 10.00 Manufacturing overhead 12.50 Selling and administrative 2.50 Total fixed costs Manufacturing overhead $2,200,000 Selling and administrative 1,375,000 What is the difference between operating income calculated on the absorption costing basis and on the variable costing basis?
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.
During its first year of operations, a company produced 275,000 units and sold 250,000 units.
The following costs were incurred during the year:
Variable costs per unit
Direct materials $15.00
Direct labor 10.00
Manufacturing
Selling and administrative 2.50
Total fixed costs
Manufacturing overhead $2,200,000
Selling and administrative 1,375,000
What is the difference between operating income calculated on the absorption costing basis and on the variable costing basis?
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