Sims Company began operations on January 1. Its cost and sales information for this year follow. Direct materials $ 30 per unit Direct labor $ 50 per unit Variable overhead $ 40 per unit Fixed overhead $ 6,600,000 per year Variable selling and administrative expenses $ 11 per unit Fixed selling and administrative expenses $ 4,250,000 per year Units produced 110,000 units Units sold 80,000 units Sales price $ 360 per unit 1. Prepare an income statement for the year using variable costing. 2. Prepare an income statement for the year using absorption costing.
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.
Sims Company began operations on January 1. Its cost and sales information for this year follow.
| Direct materials | $ 30 | per unit |
|---|---|---|
| Direct labor | $ 50 | per unit |
| Variable |
$ 40 | per unit |
| Fixed overhead | $ 6,600,000 | per year |
| Variable selling and administrative expenses | $ 11 | per unit |
| Fixed selling and administrative expenses | $ 4,250,000 | per year |
| Units produced | 110,000 | units |
| Units sold | 80,000 | units |
| Sales price | $ 360 | per unit |
1. Prepare an income statement for the year using variable costing.
2. Prepare an income statement for the year using absorption costing.
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