Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement. Sales price $90 per book Number of units produced 15,000 books Number of units sold 10,000 books Direct materials cost $15 per book Direct labor cost $6 per book Variable manufacturing overhead $4 per book Fixed manufacturing overhead $240,000 per month Selling cost $3 per book Administrative expenses $160,000 per month The owners want to understand these numbers and how they can use the information to run the business. Define and explain absorption and variable costing. a. Calculate the unit cost of goods sold using variable costing.b. Prepare the income statement for March using variable costing.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement.
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Sales price
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$90 per book
|
|
Number of units produced
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15,000 books
|
|
Number of units sold
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10,000 books
|
|
Direct materials cost
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$15 per book
|
|
Direct labor cost
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$6 per book
|
|
Variable manufacturing
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$4 per book
|
|
Fixed manufacturing overhead
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$240,000 per month
|
|
Selling cost
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$3 per book
|
|
Administrative expenses
|
$160,000 per month
|
The owners want to understand these numbers and how they can use the information to run the business.
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Define and explain absorption and variable costing.
- a. Calculate the unit cost of goods sold using variable costing.b. Prepare the income statement for March using variable costing.
- a. Calculate the unit cost of goods sold using absorption costing.b. Prepare the income statement for March using absorption costing.
- a. Identify and describe two advantages of using variable costing.b. Identify and describe two limitations of using absorption costing.
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Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.
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Define and explain throughput costing.
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