**Production and Cost Accounting: Absorption vs. Variable Costing****Question 23**Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table:| **Production Costs** | ||------------------------------------------------|--------------------------------------------------------------|| Direct materials | $2.00 per unit || Direct labor | $0.80 per unit || Variable overhead | $814,000 in total || Fixed overhead | $481,000 in total || **Nonproduction Costs** | ||------------------------------------------------|--------------------------------------------------------------|| Variable selling and administrative | $78,000 in total || Fixed selling and administrative | $210,000 in total |**Tasks:**a. Prepare Wrap-It's December 31 income statement for the current year under absorption costing.b. Prepare Wrap-It's December 31 income statement for the current year under variable costing.**Explanation:**In this scenario, we need to create two separate income statements for Wrap-It Company as of December 31st of the current year. One will use **absorption costing** while the other will use **variable costing**.1. **Absorption Costing** includes all manufacturing costs (both fixed and variable) in the cost of a product.2. **Variable Costing** only includes variable manufacturing costs in the cost of a product. Fixed manufacturing overhead is treated as a period expense. ### Absorption Costing:Income Statement for Wrap-It Company (December 31)| **Sales Revenue** | ||---------------------------------------------------------|-----------------------------------------|| Total units sold: 310,000 units @ $50 per unit | $15,500,000 || **Cost of Goods Sold (COGS)** | ||---------------------------------------------------------|-----------------------------------------|| Direct materials: 310,000 units @ $2.00 per unit | $620,000 || Direct labor: 310,000 units @ $0.80 per unit | $248,000 || Variable overhead: 310,000 units @ ($814,000/370,000) per unit | $682,054 || Fixed overhead: $

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Description: **Production and Cost Accounting: Absorption vs. Variable Costing****Question 23**Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,00

Absorption (full) costing: Absorption (full) costing is a costing technique in which all the…

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Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During thi time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table: Production costs Direct materials Direct labor $2.00 per unit $.80 per unit Variable overhead $814,000 in total $481,000 in total Fixed overhead Nonproduction costs Variable selling and administrative $78,000 in total Fixed selling and administrative $210,000 in total a. Prepare Wrap-It's December 31 income statement for the current year under absorption costing. b. Prepare Wrap-It's December 31 income statement for the current year under variable costing.

Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During thi time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table: Production costs Direct materials Direct labor $2.00 per unit $.80 per unit Variable overhead $814,000 in total $481,000 in total Fixed overhead Nonproduction costs Variable selling and administrative $78,000 in total Fixed selling and administrative $210,000 in total a. Prepare Wrap-It's December 31 income statement for the current year under absorption costing. b. Prepare Wrap-It's December 31 income statement for the current year under variable costing.

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Concept explainers

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.

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