Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations: Variable costs per unit: Manufacturing: Direct materials $ 12 Direct labor $ 7 Variable manufacturing overhead $ 2 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 248,000 Fixed selling and administrative $ 158,000 During the year, the company produced 31,000 units and sold 21,000 units. The selling price of the company’s product is $44 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year.
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.
Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ 12 | |
| Direct labor | $ 7 | |
| Variable manufacturing |
$ 2 | |
| Variable selling and administrative | $ 2 | |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ 248,000 | |
| Fixed selling and administrative | $ 158,000 | |
During the year, the company produced 31,000 units and sold 21,000 units. The selling price of the company’s product is $44 per unit.
Required:
1. Assume that the company uses absorption costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
2. Assume that the company uses variable costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
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