Insert Page Layout Formulas Data Review Home View B. Gammaro Company Income Statements for the Year Ended December 31, 2017 2 3 Variable Absorption Costing $9,350,000 5,855,000 Costing $9,350,000 4,695,000 5 Revenues 6 Cost of goods sold (at standard costs) 7 Fixed manufacturing overhead (budgeted) 8 Fixed manufacturing overhead variances (all unfavorable): 9 Spending 10 Production volume 11 Total marketing and administrative costs (all fixed) 12 Total costs 13 Operating income 1,350,000 125,000 125,000 405,000 1,570,000 1,570,000 7,740,000 $1,610,000 7,955,000 $1,395,000 14 15 Inventories (at standard costs) 16 December 31, 2016 17 December 31, 2017 $1,730,000 215,000 $1,345,000 45,000 Required 1. At what percentage of denominator level was the plant operating during 2017? 2. How much fixed manufacturing overhead was included in the 2016 and the 2017 ending inventory under absorption costing? 3. Reconcile and explain the difference in 2017 operating incomes under variable and absorption costing. 4. Tim Sweeney is concerned: He notes that despite an increase in sales over 2016, 2017 operating income has actually declined under absorption costing. Explain how this occurred.
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.
Comparison of variable costing and absorption costing. Gammaro Company uses standard costing. Tim Sweeney, the new president of Gammaro Company, is presented with the following data for 2017:
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