Landau Study Case

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Landau Case Analysis In this case we need to assess the type of cost accounting is the most effective for the Landau Company’s Income Statement. The company currently uses absorption costing, called full costing in the case write-up, and Terry Silver, the new Vice President of Marketing asks why the company is not using variable cost accounting. First, we need to assess why there is a $29,287 difference between the two accounting systems. Under absorption costing all fixed overhead costs are included in the inventoriable products as a cost per unit produced. This means that the fixed overhead costs are dependent upon the number of products produced each month. Variable costing excludes fixed overhead costs in the inventoriable products. This means that the fixed overhead costs are consistent each month. Also, with absorption costing, income changes with not just sales but with production volumes. Variable costing does not include production volumes and income changes because of sales volume. Although there are several pros and cons to each costing system, we will discuss those in variable costing next because it is the system discussed by the executive committee. The company’s controller approved of Silver’s suggestion and stated that the system would eliminate the time-consuming effort of allocating fixed overhead to individual products as well as eliminating the ensuing arguments. This would allow the overhead costs to be fixed and consistent each month making the costs independent of production. Segregating the cost of materials, direct labor, and variable overhead from fixed overhead costs, management’s cost control efforts would be enhanced. The treasurer is worried about the marketing department using the same markup in price over variable costs. In other words, he is afraid that with a constant markup as the costs increase or decrease so does

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