Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit):Direct materials (4 lbs. @ $1.50) $6.00Direct labor (0.5 hr. @ $18) 9.00Variable overhead (0.5 hr. @ $6) 3.00Fixed overhead (0.5 hr. @ $9) 4.50Total $22.50Selling and administrative costs:Variable $2 per unitFixed $238,000 During the year, the company had the following activity: Units produced 24,000Units sold 21,300Unit selling price $36Direct labor hours worked 12,000 Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expectedactual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.Required:1. Compute the unit cost using (a) absorption costing and (b) variable costing.2. Prepare an absorption-costing income statement.3. Prepare a variable-costing income statement.4. Reconcile the difference between the two income statements.
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.
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:
Direct materials (4 lbs. @ $1.50) $6.00
Direct labor (0.5 hr. @ $18) 9.00
Variable
Fixed overhead (0.5 hr. @ $9) 4.50
Total $22.50
Selling and administrative costs:
Variable $2 per unit
Fixed $238,000
During the year, the company had the following activity:
Units produced 24,000
Units sold 21,300
Unit selling price $36
Direct labor hours worked 12,000
Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expected
actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.
Required:
1. Compute the unit cost using (a) absorption costing and (b) variable costing.
2. Prepare an absorption-costing income statement.
3. Prepare a variable-costing income statement.
4. Reconcile the difference between the two income statements.
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