Ma. Isabel Lagunilla Hocson ID No.

11382368

Business Case 19-4

Landau Company

Meredith Wilcox, chief accountant of Landau Company, uses full cost accounting when recording the companys expenses. In early August, Terry Silver the new marketing vice president, was confused over the reported income for the months of June and July. Reports showed an increase in Julys sales over that of Junes but was not the same for the companys income which showed a decrease. Wilcox tried a new method to address Mr. Silvers concern. By using the variable costing method, she was able to show Mr. Silver the indeed the company performed better in July. Mr. Silver got excited and suggested to the board that they change to variable costing method for internal income statements to better reflect the profitability of each individual product. Now, the question is should Landau Company switch to using variable costing or use their current full cost accounting method? Variable cost accounting would be beneficial for internal decisions but not advisable for financial reporting. Also, the use of variable costing may lead decision makers to focus more on contribution margin and not enough on management of non variable cost. Stakeholders may believe that the business is more profitable than it actually is.