1.

Upon looking at the situation, it can be concluded that the primary reason for the $29,287
difference in July was because of the two different costing methods utilized. By
differentiating these two costing methods, we can safely pinpoint the cause of these
differences.

Under the full costing method, all manufacturing costs, including both variable and fixed
costs, are allocated to the product. This implies that fixed costs are allocated to products based
on predetermined overhead rate. In this costing method, fixed manufacturing overhead costs
are considered to be a product costs and are included in the cost of goods sold on the income
statement.

Meanwhile, variable costing only allocates variable manufacturing costs, such as materials,
direct labor, and various manufacturing overhead to the products. Fixed manufacturing
overhead costs are not allocated to the products. Rather, they are treated as period expenses
and are expensed on the income statement during the period they were incurred. With that, the
cost of goods sold under variable costing only includes the variable manufacturing costs
associated with the product.

In the case of Landau company, the low production resulted to under-absorption of

manufacturing costs, creating an unfavorable volume variance, thus offsetting the added gross
margin from the increase in sale. This will result to lower income before taxes under full
costing.

2. As it is, it cannot be denied that these costing methods have their own pros and cons. Thus, it
is important for the company to weigh these and decide on the best method.

As for variable costing, its pros include providing a more accurate and useful information on
product profitability, since it separates fixed overhead costs from variable costs. Moreover,
this method is easier to use compared to full costing because it eliminates the need for
allocating overheads to individual product. Lastly, it may enhance the management’s cost
control efforts, as they segregate variable costs from fixed costs.

However, cons cannot be avoided in business. For one, variable costing may lead to a myopic
view of costs, because it focuses on only variable costs and ignores fixed costs. It might also
make it easier for marketing managers to sell products at a mark-up over variable costs,
however, this does not consider the impact on fixed costs.

3. Mr. Silver’s argument regarding Product 129 and 243 is heavily based on the fact that under
full costing, Product 243 appears to be more profitable than Product 129. The complete
opposite is then showcased on variable costing. This is because full costing allocates fixed
overhead costs to products based on standard volume, which distorts the profitability of
products that are produced at below-standard volumes. On the other hand, variable costing
considers fixed overhead costs as a period expenses, meaning that products are only charged
with variable costs that they consume, regardless of the volume of production.

4. Indeed, Landau Company should a adopt variable costing for its monthly income statements.
Not only does this method provide timely data, it can also provide more useful and accurate
information. With this method, managers are able to utilize the data well and arrive at a
sound decision for the betterment of the company.