Easton Pump Company’s planned production for the year just ended was 20,000 units. This production level was achieved, and 21,000 units were sold. Other data follow: Direct material used ........................................................................................ $600,000Direct labor incurred ...................................................................................... 300,000Fixed manufacturing overhead ................................................................. 420,000Variable manufacturing overhead ........................................................... 200,000Fixed selling and administrative expenses .......................................... 350,000Variable selling and administrative expenses .................................... 105,000Finished-goods inventory, January 1 ................................................. 2,000 units The cost per unit remained the same in the current year as in the previous year. There were no work-inprocess inventories at the beginning or end of the year.Required:1. What would be Easton Pump Company’s finished-goods inventory cost on December 31 under the variable-costing method?2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?
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.
Easton Pump Company’s planned production for the year just ended was 20,000 units. This production level was achieved, and 21,000 units were sold. Other data follow:
Direct material used ........................................................................................ $600,000
Direct labor incurred ...................................................................................... 300,000
Fixed manufacturing
Variable manufacturing overhead ........................................................... 200,000
Fixed selling and administrative expenses .......................................... 350,000
Variable selling and administrative expenses .................................... 105,000
Finished-goods inventory, January 1 ................................................. 2,000 units
The cost per unit remained the same in the current year as in the previous year. There were no work-inprocess inventories at the beginning or end of the year.
Required:
1. What would be Easton Pump Company’s finished-goods inventory cost on December 31 under the variable-costing method?
2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?
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