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Landau Company

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Landau Company

Problem Statement:
What Costing System Landau Company should best represent Landau Company’s Monthly Income Statement?

Objectives:
1. To cite Pros and Cons of the chosen costing system
2. To choose and adapt a new costing method that better manages the cost of Landau Company’s Monthly Income Statement

Areas of Consideration:

1. The significant Increase of sales in July over June.
2. Lack of control over long run costs that can bankrupt a company.
3. Landau’s margin on products for the months of June and July.
4. The company is looking for a new approach for internal managerial purposes.

Alternative Courses of Action 1. Variable Costing System
Pros
* Provides benchmark on the profitability of manufactured products * It simplifies the bookkeeping of the company * It helps in establishing a responsible accounting in the company from which it identifies what the costs should be, who are the responsible personnel and whether costs are still under control. * Reduce time consuming efforts of allocating fixed overhead to individual products * Advantageous in making periodic management decision for the use in internal reports * Profit for a period is not affected in the changes in inventories

Cons * Variable costing is usually prepared on a monthly basis. The information in the reports may not be used or too insignificant for the next accounting period. * Variable costing cannot produce reliable tax reports or any external reports such as the government. * In variable costing products might be sold in their marginal or usual mark up over variable cost. * Identification of variances Volume is not being considered in variable costing due to no fixed overhead is applied to products.

2. Full Absorption Costing System

Pros * Required for financial reporting, income tax purposes, and…...

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