Vulcan Company Income Statement For the Month Ended June 30 Sales .... $750,000 Variable expenses.. 336,000 414,000 Contribution margin Fixed expenses..... Net operating income...... 378,000 $ 36,000
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.
Segment Reporting and Decision-Making
Vulcan Company’s contribution format income statement for June is as follows:
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:
a. The company is divided into two sales territories—Northern and Southern. The Northern territory recorded $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 are traceable to the Northern and Southern territories, respectively. The rest of the fixed expenses are common to the two territories.
b. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled 550,000 and 5250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territory’s fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.
Required:
1. Prepare contribution format segmented income statements first showing the total company broken down between sales territories and then showing the Northern territory broken down by product line. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.
2. Look at the statement you have prepared showing the total company segmented by sales territory. What insights revealed by this statement should be mentioned to management?
3. Look at the statement you have prepared showing the Northern territory segmented by product lines. What insights revealed by this statement should be mentioned to management?
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