Question

In: Accounting

please select a product that you can use and list some of the manufacturing costs (direct...

please select a product that you can use and list some of the manufacturing costs (direct material, direct labor, variable factory overhead, and fixed factory overhead). Indicate which would be included in the cost of goods sold under variable and absorption costing.

Solutions

Expert Solution

Absorption costing, also called full costing, is what you are used to under Generally Accepted Accounting Principles. Under absorption costing, companies treat all manufacturing costs, including both fixed and variable manufacturing costs, as product costs. Remember, total variable costs change proportionately with changes in total activity, while fixed costs do not change as activity levels change. These variable manufacturing costs are usually made up of direct materials, variable manufacturing overhead, and direct labor. The product costs (or cost of goods sold) would include direct materials, direct labor and overhead. The period costs would include selling, general and administrative costs.

The following diagram explains the cost flow for product and period costs.

The product cost, under absorption costing, would be calculated as:

Direct Materials
+ Direct Labor
+ Variable Overhead
+ Fixed Overhead
= Total Product Cost

You can calculate a cost per unit by taking the total product costs / total units PRODUCED. Yes, you will calculate a fixed overhead cost per unit as well even though we know fixed costs do not change in total but they do change per unit. We will assign a cost per unit for accounting reasons. When we prepare the income statement, we will use the multi-step income statement format.

We will not get as complicated in our multi-step income statement as the video example but it should have provided a refresher from what you should have learning in financial accounting. For our purpose, the absorption income statement will contain:

Sales
– Cost of Goods Sold
= Gross Profit
Operating Expenses:
Selling Expenses
+ General and Admin. Expenses
   = Total Expenses
= Net Operating Income

Gross Profit is also referred to as gross margin. Net operating income is Gross Profit – Total Operating Expenses and is also called Income before taxes.


Related Solutions

1. List examples of manufacturing and non-manufacturing costs for the following manufacturing companies (One product was...
1. List examples of manufacturing and non-manufacturing costs for the following manufacturing companies (One product was chosen per company). Write : Direct Material (2 or more), Direct Labor (1 or more if applicable), Manufaturing Overhead (3 or more); Non-Manufacturing (3 or more) for each product and company a. Company: Hewlett-Packard. Product: printers b. Company: KDD. Product: Cooking Cream c. Company: Nike. Product: Training shoes
Can you give me a list of some ideas on how I can cut costs in...
Can you give me a list of some ideas on how I can cut costs in order to try and stay within a budget? I need a 175 word count please. Thank you very much for your time and effort.
Select a product and identify the fixed and variable costs of producing the product. If you...
Select a product and identify the fixed and variable costs of producing the product. If you were responsible for managing the costs, how would you reduce them in order to increase profitability? Please give 1 or two examples
  Costs for Product Y Direct material                                 $90 Direct labo
  Costs for Product Y Direct material                                 $90 Direct labor                                         45         Variable Factory Overhead            35 Variable Selling Costs                         5 Fixed Factory Overhead*                30 Fixed Selling Costs*                          10                     Total Cost per unit                   $215 *Reflects common (allocated) costs that will not change with special order                             Capacity = 200,000 units, currently producing 120,000 units                             The normal selling price per unit = $250 The special order: A customer outside the normal market offers to purchase 60,000 units of Product Y. Variable...
Given below is a list of costs: Direct labor                                   &
Given below is a list of costs: Direct labor                                                                 35,500 Accounting Dept. salaries                                          70,000 Indirect materials                                                        32,700 Depreciation, factory                                                  15,000 Direct materials                                                          66,000 Sales commission                                                       36,000 Indirect labor                                                              20,200 Advertising                                                                 5,800 Water and electricity of the office                              12,000 Required, From the above costs calculate the following costs (show your calculation): Total product costs Total period costs Total prime costs Total conversion costs
Manufacturing or production costs are classified into three basic elements: Direct Materials, Direct Labor, and Manufacturing...
Manufacturing or production costs are classified into three basic elements: Direct Materials, Direct Labor, and Manufacturing Overhead. Group of answer choices True False Flag this Question Question 22 pts The wages of the factory’s janitorial staff are considered manufacturing overhead costs. Group of answer choices True False Flag this Question Question 32 pts The formula for break-even units is Fixed Expenses/Contribution Margin Ratio. Group of answer choices True False Flag this Question Question 42 pts Direct labor would be considered...
Factor Co. can produce a unit of product for the following costs: Direct material $ 7.80...
Factor Co. can produce a unit of product for the following costs: Direct material $ 7.80 Direct labor 23.80 Overhead 39.00 Total costs per unit $ 70.60 An outside supplier offers to provide Factor with all the units it needs at $45.20 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to:
Hamilton company applies manufacturing overhead costs to product based on direct labor hours. the company estimates...
Hamilton company applies manufacturing overhead costs to product based on direct labor hours. the company estimates manufacturing overhead cots for the year to be 280000 and direct labor hours to be 20000. actual overhead and actual direct labor hours for the year were 335000 and 25000 hour respectively required 1. compute over or underapplied overhead 2a. which accounts will be affected by the over- or underapplied manufacturing overhead ? 2b. will the accounts be increased or decreased to abjust for...
Select a product with which you are familiar. Describe what types of standard (direct material and...
Select a product with which you are familiar. Describe what types of standard (direct material and direct labor) might be in effect for the product wherever it is produced. For each of these standards, discuss how those standards may become outdated. How frequently would you think the company need to evaluate each of the standards? **Please use different example of the ones we have here
List and define some of the costs of quality. ​
List and define some of the costs of quality. ​
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT