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Fjeldsted A/S produces three different products in the same plant and use a job order costing system to estimate product costs. A flexible budget is
Fjeldsted A/S produces three different products in the same plant and use a job order costing system to estimate product costs. A flexible budget is used to forecast overhead costs. Total budgeted fixed factory overhead is DKK 4,250,000 and variable overhead is 140 percent of direct labor DKK. The details of the three products are as follows: Product Standard Product Medium Product High 5,000 500 275 Projected number of units Direct materials per unit (DKK) Direct labor per unit (DKK) Selling price (DKK) 10,000 190 100 900 210 150 1,050 200 1,250 An analysis of the overhead account shows that warehousing (inventory) costs seems to be the most important item of the different items in the overhead account. The manufacturing process requires six operations. Between operations, intermediate products are moved and warehoused until the next production stage will take place. Each product requires 10 days of processing time to complete all six operations. But the products have different total cycle times because of different waiting times between operations. Cycle time is the total time from when the product is started in production until it is completed and shipped. Product Standard has the shortest cycle time (20 days) because the large volume allows more accurate forecasts and more continuous scheduling of production. Product Medium has a total cycle time of 45 days, and product High has a total cycle time of 60 days. Medium and High have longer warehouse times of work in progress because of more frequent scheduling changes and suppliers delay. 50 percent of the fixed overhead costs are related to the warehousing functions. Required a. Prepare an income statement product by product for the year based on full absorption costing. b. Prepare a revised income statement product by product using Activity Based Costing (ABC). C. Discuss the two types of income statements and presents your recommendation to the management
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