Landau Company

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Managerial accounting

“Case: 19-4 Landau Company””

Question 1:
* The income statements prepared under absorption costing and variable costing usually produce different net operating income figures. Under absorption costing if inventories increase then some of the fixed manufacturing costs of the current period will not appear on the income statement as part of cost of goods sold. Instead, these costs are deferred to a future period and are carried on the balance sheet as part of the inventory account. Such a deferral of cost is known as fixed manufacturing overhead deferred in inventory, as the accountant said that the July production was well below standard volume because of employee vacations this caused overhead to be under absorbed so as we can see in the income statement a large amount of overhead volume the amount 63,779 is deducted from gross margin and it cause less income however the sales are increased, but in variable costing because we don’t include this overhead volume and we have just a fix amount of fix cost for every month this problem is not visible. Income Statement June and July |

Sales revenues| 865,428 | 865,428 | 931,710 | 931,710 | Cost of sales at standard| 448,640 | 337,517 | 521,758 | 363,367 | Standard gross margin| 380,788 | 527,911 | 409,952 | 568,343 | product cost variance|  |  |  |  |

labor| (16,259)| (16,259)| (11,814)| (11,814)|
material| 12,416 | 12,416 | 8,972 | 8,972 |
overhead volume| 1,730 | 0 | (63,779)| 0 |
overhead spending| 3,604 | 3,604 | 2,832 | 2,832 |
actual gross margin| 382,729 | 527,672 | 346,163 | 568,333 | fixed production overhead| 0 | 192,883 | 0 | 192,833 | admin| 301,250 | 301,250 | 310,351 | 310,351 |
income before taxes| 81,029 | 33,539 | 35,813 | 65,109 |

* And as we can see in income statement the income of June under variable costing is 33,539 and under 81,029 under full costing the less income that is...
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