Walton Company incurred manufacturing overhead cost for the year as follows. Direct materials $ 39.00 /unit Direct labor $ 27.40 /unit Manufacturing overhead Variable $ 11.10 /unit Fixed ($18.80/unit for 1,900 units) $ 35,720 Variable selling and administrative expenses $ 10,360 Fixed selling and administrative expenses $ 15,500 The company produced 1,900 units and sold 1,400 of them at $182.00 per unit. Assume that the production manager is paid a 1 percent bonus based on the company’s net income. Required Prepare an income statement using absorption costing. Prepare an income statement using variable 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.
Walton Company incurred
| Direct materials | $ | 39.00 | /unit |
| Direct labor | $ | 27.40 | /unit |
| Manufacturing overhead | |||
| Variable | $ | 11.10 | /unit |
| Fixed ($18.80/unit for 1,900 units) | $ | 35,720 | |
| Variable selling and administrative expenses | $ | 10,360 | |
| Fixed selling and administrative expenses | $ | 15,500 | |
The company produced 1,900 units and sold 1,400 of them at $182.00 per unit. Assume that the production manager is paid a 1 percent bonus based on the company’s net income.
Required
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Prepare an income statement using absorption costing.
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Prepare an income statement using variable costing.
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Determine the manager’s bonus using each approach. Which approach would you recommend for internal reporting?
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