please write the summary of this and do it in a proper manner as I have to do a ppt form so please do it in a topic wise manner and also the exhibit shown in pg 2 please also explain and if do it like a ppt type solution

Case 19-4 Landau Company* In early August, Terry Silver, the new marketing vice president of Landau Company, was studying the July income statement. Silver found the statement puz- zling: July's sales had increased significantly over June's, yet income was lower in July than in June. Sil- ver was certain that margins on Landau's products had not narrowed in July and therefore felt that there must be some mistake in the July statement. When Silver asked the company's chief accountant, Meredith Wilcox, for an explanation, Wilcox stated that production in July was well below standard vol- ume because of employee vacations. This had caused overhead to be underabsorbed, and a large unfavorable volume variance had been generated, which more than offset the added gross margin from the sales increase. It was company policy to charge all variances to the monthly income statement, and these production vol- ume variances would all wash out by year's end, Wilcox had said. * Copyright by James S. Reece. 616 Accounting - Vol. 2 602 Part 2 Management Accounting Standard Production Cost Selling Price Product Unit Margin Margin Percent $1.80 41.5 2.84 48.2 129 243 $2.54 3.05 $4.34 5.89 Thus, product 243 would appear to be the more de- sirable one to sell. But on the proposed basis, the num- bers were as follows: Standard Production Selling Cost Price Product 129 243 Unit Margin Margin Percent $2.96 68.2 3.52 59.8 $1.38 2.37 $4.34 5.89 Silver, who knew little about accounting, found this explanation to be "incomprehensible. With all the peo- ple in your department, I don't understand why you can't produce an income statement that reflects the eco- nomics of our business. In the company that I left to come here, if sales went up, profits went up. I don't see why that shouldn't be the case here, too." As Wilcox left Silver's office, a presentation at a re- cent Institute of Management Accountants meeting came to Wilcox's mind. At that meeting the controller of Winjum Company had described that firm's variable costing system, which charged fixed overhead to in- come as a period expense and treated only variable production costs as inventoriable product costs. Win- jum's controller had stressed that, other things being equal, variable costing caused income to move with sales only, rather than being affected by both sales and production volume as was the case with full absorp- tion costing systems. Wilcox decided to recast the June and July income statements and balance sheets using variable costing. (The income statements as recast and as originally prepared, and the related inventory and retained earn- ings impacts, are shown in Exhibit 1.) Wilcox then showed these statements to Terry Silver, who re- sponded, Now that's more like it! I knew July was a better month for us than June, and your new 'variable costing statements reflect that. Tell your boss [Landau's controller) that at the next meeting of the executive committee I'm going to suggest we change to this new method." At the next executive committee meeting, Silver proposed adoption of variable costing for Landau's monthly internal income statements. The controller also supported this change, saying that it would elimi- nate the time-consuming efforts of allocating fixed overhead to individual products. These allocations had only led to arguments between product managers and the accounting staff. The controller added that since variable costing segregated the costs of materials, di- rect labor, and variable overhead from fixed overhead costs, management's cost control efforts would be enhanced. Silver also felt that the margin figures provided by the new approach would be more useful than the pre- sent ones for comparing the profitability of individual products. To illustrate the point, Silver had worked out an example. With full costing, two products in Landau's line, numbers 129 and 243, would appear as follows: According to Silver, these numbers made it clear that product 129 was the more profitable of the two. At this point, the treasurer spoke up. "If we use this new approach, the next thing we know you marketing types will be selling at your usual markup over vari- able costs. How are we going to pay the fixed costs then? Besides, in my 38 years of experience, it's the lack of control over long-run costs that can bankrupt a company. I'm opposed to any proposal that causes us to take a myopic view of costs." The president also had some concerns, having fur- ther considered the proposal. In the first place, if I add together the June and July pretax profit under each of these methods, I get almost $117,000 with the present method, but only $99,000 under the proposed method. While I'd be happy to lower our reported profits from the standpoints of relations with our employee union and income taxes, I don't think it's a good idea as far as our owners and bankers are concerned. And I share Jamie's [the treasurer's] concern about controlling long-run costs. I think we should defer a decision on this matter until we fully understand all of the implications." Questions 1. Critique the various pros and cons of the variable costing proposal that were presented in the meet- ing. What arguments would you add? 2. Should Landau adopt variable costing for its monthly income statements? prepared, and the related inventory and retained earn- ings impacts, are shown in Exhibit 1.) Wilcox then showed these statements to Terry Silver, who re- sponded, "Now that's more like it! I knew July was a better month for us than June, and your new 'variable costing statements reflect that. Tell your boss [Landau's controller) that at the next meeting of the executive committee I'm going to suggest we change to this new method." At the next executive committee meeting, Silver proposed adoption of variable costing for Landau's monthly internal income statements. The controller also supported this change, saying that it would elimi- nate the time-consuming efforts of allocating fixed overhead to individual products. These allocations had only led to arguments between product managers and the accounting staff. The controller added that since variable costing segregated the costs of materials, di- rect labor, and variable overhead from fixed overhead costs, management's cost control efforts would be enhanced. Silver also felt that the margin figures provided by the new approach would be more useful than the pre- sent ones for comparing the profitability of individual products. To illustrate the point, Silver had worked out an example. With full costing, two products in Landau's line, numbers 129 and 243, would appear as follows: types will be selling at your usual markup over vari- able costs. How are we going to pay the fixed costs then? Besides, in my 38 years of experience, it's the lack of control over long-run costs that can bankrupt a company. I'm opposed to any proposal that causes us to take a myopic view of costs." The president also had some concerns, having fur- ther considered the proposal. In the first place, if I add together the June and July pretax profit under each of these methods, I get almost $117,000 with the present method, but only $99,000 under the proposed method. While I'd be happy to lower our reported profits from the standpoints of relations with our employee union and income taxes, I don't think it's a good idea as far as our owners and bankers are concerned. And I share Jamie's [the treasurer's] concern about controlling long-run costs. I think we should defer a decision on this matter until we fully understand all of the implications." Questions 1. Critique the various pros and cons of the variable costing proposal that were presented in the meet- ing. What arguments would you add? 2. Should Landau adopt variable costing for its monthly income statements? Accounting: Text and Cases, 13th Edition 617 Chapter 19 Standard Costs, Variable Costing Systems, Quality Costs, and Joint Costs 603 EXHIBIT 1 Effects of Variable Costing Income Statements June and July June July Full Costing $865,428 484,640 380,788 Variable Costing $865,428 337,517 527,911 Full Costing $931,710 521,758 409,952 Variable Costing $931,710 363,367 568,343 (16,259) 12,416 (11,814) 8,972 Sales revenues Cost of sales at standard Standard gross margin Production cost variances: Labor Material Overhead volume Overhead spending Actual gross margin Fixed production overhead Selling and administrative Income before taxes (16,259) 12,416 1,730 3,604 382,279 (11,814) 8,972 (63,779) 2,832 346,163 3,604 527,672 192,883 301,250 $ 33,539 2,832 568,333 192,883 310,351 $ 65,109 301,250 $ 81,029 310,351 $ 35,812 Parentheses denote unfavorable (debit) variances. Impact on Inventories and Retained Earnings The only asset account affected by the difference in accounting method was Inventories; on the liabilities and owners' equity side, only Retained Earnings was affected. (There was no tax liability impact since variable costing was not permitted for in- come tax reporting purposes.) As of June 30 As of July 31 Full Variable Full Variable Costing Costing Costing Costing Inventories $1,680,291 $1,170,203 $1,583,817 $1,103,016 Retained earnings 3,112,980 2,602,892 3,131,602 2,650,801 Case 19-5