Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July: Sales (4,000 units) $2,600,000 Production costs (4,350 units): Direct materials $1,218,000 Direct labor 522,000 Variable factory overhead 87,000 Fixed factory overhead 130,500 1,957,500 Selling and administrative expenses: Variable selling and administrative expenses $ 60,000 Fixed selling and administrative expenses 25,000 85,000 Prepare an income statement according to the absorption costing concept. Prepare an income statement according to the variable costing concept. What is the reason for the difference in the amount of operating income reported in (a) and (b)?
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.
Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July:
| Sales (4,000 units) | $2,600,000 | |
| Production costs (4,350 units): | ||
| Direct materials | $1,218,000 | |
| Direct labor | 522,000 | |
| Variable factory |
87,000 | |
| Fixed factory overhead | 130,500 | 1,957,500 |
| Selling and administrative expenses: | ||
| Variable selling and administrative expenses | $ 60,000 | |
| Fixed selling and administrative expenses | 25,000 | 85,000 |
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Prepare an income statement according to the absorption costing concept.
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Prepare an income statement according to the variable costing concept.
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What is the reason for the difference in the amount of operating income reported in (a) and (b)?
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