The income statements prepared under absorption costing and variable costing usually produce different net operating income figures. Under absorption costing if inventories increase then some of the fixed manufacturing costs of the current period will not appear on the income statement as part of cost of goods sold. Instead, these costs are deferred to a future period and are carried on the balance sheet as part of the inventory account. Such a deferral of cost is known as fixed manufacturing overhead deferred in inventory, as the accountant said that the July production was well below standard volume because of employee vacations this caused overhead to be under absorbed so as we can see in the income statement a large amount of overhead volume the amount 63,779 is deducted from gross margin and it cause less income however the sales are increased, but in variable costing because we don’t include this overhead volume and we have just a fix amount of fix cost for every month this problem is not visible. Income Statement June and July |

EMBA 2016 - Managerial Accounting - Case Study 2
Landau Company
Problem 1
Input Data Provided
- Sales increased in July
- Production decreased in July below standard because of employee vacations
- As a result of vacations overhead costs have been under absorbed in July
- Large unfavorable volume variance had been generated to offset gross margin
Explanation Required
On the Income Statements under Full costing and Variable costing some line items indicate

Landau Company

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