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Module 3 Case - Assignment Example

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Module 3 Case

al Production Cost 3,100,000 Total Production Units 50,000 Production Cost Per Unit 62 Performance for the 2nd Quarter As far as the improvements are considered for the 2nd quarter, the assessment for Mr. Rosen is not under right direction. The information that they had provided, gives the same amount of net income under both approaches. Sales are same for both these approaches. However, the costing side is affected by these two approaches such that the costs are broken up on different methods under the two approaches. For instance, under absorption costing, costs are divided into two main categories which are 1) costs directly attributable to units sold, and 2) costs which are not directly related to the manufacturing process (Jordan and Harris, 2008). Conversely, if contribution margin costing approach is taken into consideration, the overall costs of the company are divided into 1) variable cost, and 2) fixed cost. Variable costs are the ones which increases of decreases with the number of units sold but remain constant on per unit basis. However, fixed costs are the ones that remain same regardless of the number of units sold, but for a certain capacity (Kinney and Raiborn, 2009). Cumulatively, the net effect of these two approaches has found to be the same under the given information. However, the breakup of the costs under both approaches can be observed in a distinct manner. The second quarter performance for the division is same because number of units sold is same as the last year. Although, the overall production cost has been increased because of increasing the number of units, but since the sales units are the same, therefore production cost pertaining to units that are actually sold, has been taken into account which has caused the same result for both approaches under both quarters. Suggestion on Appropriate Reporting System From the given information, there are few suggestions to be made. The clear difference between absorption and marginal costing approach can only be observed clearly if there is comprehensive information provided especially regarding the level of inventory. In that case, it would be a rather better approach to make a clear point regarding which costing approach provides the better results. For better results, Mr. Roses is advised to not only increase the production units but also increase the sales volume as well. This will substantiate better performance rather than focusing on the reporting approach to demonstrate better results which is not more than a complacent view. Shortcomings of Absorption Costing Approach There are various shortcomings of absorption costing as a method of internal ...Show more


Conversion of Income Statement for the 1st Quarter into Contribution Margin Costing Approach Income Statement for 1st Quarter Contribution Margin Costing Approach   Per unit Amount Production 25,000     Sales 100 2,500,000 Variable Cost 62 (1,550,000) Contribution Margin 950,000 Fixed Cost (600,000) Net Income   350,000 Income Statement for 2nd Quarter under Absorption Costing Approach Income Statement for 2nd Quarter Absorption Costing Approach Sales 2,500,000 Cost of Goods Sold (1,800,000) Gross Profit 700,000 Selling and Admin expenses (350,000) Net Profit   350,000 Income Statement for 2nd Quarter under Contribution Margin Approach Income Statement for 2nd Quarter Contribution Margin…
Author : ryanloma
Module 3 Case Assignment
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