Absorption and variable costing income statements for two months and analysis During the first month of operations ended May 31, Big Sky Creations Company produced 56,250 designer cowboy boots, of which 52,950 were sold. Operating data for the month are summarized as follows: 1 Sales $794,250.00 2 Manufacturing costs: 3 Direct materials $416,250.00 4 Direct labor 135,000.00 5 Variable manufacturing cost 61,875.00 6 Fixed manufacturing cost 56,250.00 669,375.00 7 Selling and administrative expenses: 8 Variable $31,770.00 9 Fixed 26,475.00 58,245.00 During June, Big Sky Creations produced 49,650 designer cowboy boots and sold 52,950 cowboy boots. Operating data for June are summarized as follows: 1 Sales $794,250.00 2 Manufacturing costs: 3 Direct materials $367,410.00 4 Direct labor 119,160.00 5 Variable manufacturing cost 54,615.00 6 Fixed manufacturing cost 56,250.00 597,435.00 7 Selling and administrative expenses: 8 Variable $31,770.00 9 Fixed 26,475.00 58,245.00 Required: Using the absorption costing concept, prepare income statements for (a) May and (b) June.* Using the variable costing concept, prepare income statements for (a) May and (b) June.* Explain the reason for the differences in operating income in (1) and (2) for May. Explain the reason for the differences in operating income in (1) and (2) for June. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain.
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.
Absorption and variable costing income statements for two months and analysis
During the first month of operations ended May 31, Big Sky Creations Company produced 56,250 designer cowboy boots, of which 52,950 were sold. Operating data for the month are summarized as follows:
|
1 |
Sales |
|
$794,250.00 |
|
2 |
|
|
|
|
3 |
Direct materials |
$416,250.00 |
|
|
4 |
Direct labor |
135,000.00 |
|
|
5 |
Variable manufacturing cost |
61,875.00 |
|
|
6 |
Fixed manufacturing cost |
56,250.00 |
669,375.00 |
|
7 |
Selling and administrative expenses: |
|
|
|
8 |
Variable |
$31,770.00 |
|
|
9 |
Fixed |
26,475.00 |
58,245.00 |
During June, Big Sky Creations produced 49,650 designer cowboy boots and sold 52,950 cowboy boots. Operating data for June are summarized as follows:
|
1 |
Sales |
|
$794,250.00 |
|
2 |
Manufacturing costs: |
|
|
|
3 |
Direct materials |
$367,410.00 |
|
|
4 |
Direct labor |
119,160.00 |
|
|
5 |
Variable manufacturing cost |
54,615.00 |
|
|
6 |
Fixed manufacturing cost |
56,250.00 |
597,435.00 |
|
7 |
Selling and administrative expenses: |
|
|
|
8 |
Variable |
$31,770.00 |
|
|
9 |
Fixed |
26,475.00 |
58,245.00 |
|
Required: |
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Using the absorption costing concept, prepare income statements for (a) May and (b) June.* |
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Using the variable costing concept, prepare income statements for (a) May and (b) June.* |
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Explain the reason for the differences in operating income in (1) and (2) for May. |
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|
Explain the reason for the differences in operating income in (1) and (2) for June. |
|||
|
Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. |
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