Bairstow Company manufactures and sells a single product. The following costs were incurred during 2021, the company’s first year of operations: Variable Costs per unit: Production: Direct materials $ 6.00 Direct labour $ 9.00 Variable Manufacturing Overhead $ 3.00 Selling and administrative $ 4.00 FIXED COSTS PER YEAR Manufacturing Overhead $ 300,000 Selling and administrative $ 190,000 During 2021, the company produced 25,000 units and sold 20,000 units. The selling price of the company’s product is $ 50 per unit. Required: 1. Assume that the company uses the absorption costing method: Compute the cost to produce one unit of product. Prepare an income statement for 2021 Assume the company uses the variable costing method: Compute the cost to produce one unit of product.
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.
Bairstow Company manufactures and sells a single product. The following costs were incurred during 2021, the company’s first year of operations:
|
Variable Costs per unit:
|
|
|
Production: |
|
|
Direct materials |
$ 6.00 |
|
Direct labour |
$ 9.00 |
|
Variable Manufacturing |
$ 3.00 |
|
Selling and administrative |
$ 4.00 |
|
FIXED COSTS PER YEAR |
|
|
Manufacturing Overhead |
$ 300,000 |
|
Selling and administrative |
$ 190,000 |
During 2021, the company produced 25,000 units and sold 20,000 units. The selling price of the company’s product is $ 50 per unit.
Required: 1. Assume that the company uses the absorption costing method:
- Compute the cost to produce one unit of product.
- Prepare an income statement for 2021
- Assume the company uses the variable costing method:
- Compute the cost to produce one unit of product.
- Prepare an income statement for 2021.
- Reconcile the variable costing and absorption costing operating incomes. Explain the reasons for the differences between the variable costing and absorption costing net incomes.
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Bairstow Company manufactures and sells a single product. The following costs were
incurred during 2021, the company’s first year of operations:
Variable Costs per unit:
Production:
Direct materials $ 6.00
Direct labour $ 9.00
Variable Manufacturing
Selling and administrative $ 4.00
FIXED COSTS PER YEAR
Manufacturing Overhead $ 300,000
Selling and administrative $ 190,000
During 2021, the company produced 25,000 units and sold 20,000 units. The selling price of
the company’s product is $ 50 per unit.
Required:
2. Assume the company uses the variable costing method:
a. Compute the cost to produce one unit of product. (2 marks)
b. Prepare an income statement for 2021. (8 marks)
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