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Problem Statement
What costing System should Landau Company adopt to best depict the company's Income Statement?
Objectives
? To adapt an accurate costing system that would depict the monthly income statement of Landau Company.
? To cite the Pros and Cons of the chosen costing system.
? To enhance management's control efforts and present a rational and balance Income Statement.
Areas of Consideration
? The significant increase of sales in July over June, yet income was lower in July than in June.
? Lack of control over long-run costs that can bankrupt a company.
? Margins on Landau's products in June and July.
? The company is looking for a new approach for internal managerial purposes.
Alternative Courses of Action
1. Variable Costing System
Pros:
? Eliminates time consuming efforts of allocating fixed overhead to individual products.
? Management's cost control efforts would be enhanced.
? Useful in comparing the profitability of individual product.
? Avoids the complexities associated with manufacturing overhead.
? Removes fixed manufacturing overhead and teats it as a period cost and not as a product cost.
? Helps managers understand h manufacturing costs are being incurred
? Very valuable tool for management in making decision and often use for internal reports.
? Income figure is not affected by production thus overproduction can be prevented.
Cons:
? Selling the products at their usual mark up over variable costs.
? Volume variances will not appear due to no fixed overhead is applied to products.
? Not permitted for external reporting purposes.
? Almost no manufacturers use this procedure in publ ...