It includes Brief Question, Descriptive Questions and Analytical Questions with answers in details
Absorption costing is a traditional costing system.
It is also called full absorption, conventional costing or traditional costing and external costing.
It includes variable cost and fixed cost manufacturing.
Absorption costing includes direct materials, direct labour, variable manufacturing cost and fixed manufacturing cost in product cost.
It includes administrative cost, selling and distribution cost in period cost.
But it does not include fixed manufacturing cost in period cost.
The main object of the business company is to earn more and more profit.
Success or failure of the company is depended on profit.
The income statement measures profit or loss of the company.
There are two types of methods to find out profit and loss from income statement.
Absorption costing and variable costing are two methods to prepare income statement.
Absorption costing is suitable for internal as well as external users but variable costing is suitable for internal users with management decision.
Direct materials, direct labour, variable manufacturing cost and fixed manufacturing cost = Production units × Cost per unit
Period cost under absorption costing = Administrative cost + Selling and distribution cost
Total variable, selling and distribution cost = Sales units × Cost per unit
For ….. units
Particulars |
Amount |
||
Sales Revenue (sales units @ $) |
xxxx |
||
(A) |
xxxx |
||
Manufacturing cost: |
|
||
|
Direct materials (production units @ $) |
|
|
|
Direct labour (production units @ $) |
|
|
|
Variable production overhead (production units @ $) |
|
|
|
Fixed production cost (production units @ $*) |
|
|
|
Total manufacturing cost or Cost of production |
xxxx |
|
Add: |
Beginning inventory (opening stock @ $) |
xxxx |
|
Less: |
Ending inventory (closing stock @ $) |
(xxx) |
|
|
COGS before adjustment |
xxxx |
|
Add: |
Under absorption# manufacturing cost (compare with actual) |
xxxx |
|
Less: |
Over absorption manufacturing cost (compare with actual) |
(xxx) |
|
|
COGS after adjustment (B) |
xxxx |
|
|
Gross profit (A–B) |
xxxx |
|
Less: |
Variable administrative cost (production units x $) |
xxxx |
|
|
Variable S&D cost (sales units x $) |
xxxx |
|
Less: |
Fixed administrative cost (production units x $) |
xxxx |
|
|
Fixed S & D cost (sales units x $) |
xxxx |
xxxx |
Net Income |
$xxxx |
Fixed cost per unit (FCPU*) = Fixed manufacturing cost ÷ Normal output
Either over absorption# or under absorption
Variable costing is also known as internal costing, direct costing and marginal costing.
Variable cost helps to administrator to solve the problem about production planning.
Under this method, production cost is calculated on variable basis.
Variable costing includes direct materials, direct labour and variable manufacturing cost in product cost.
It includes fixed manufacturing cost, administrative, selling and distribution cost in period cost.
Direct materials, direct labour, variable manufacturing cost:
= Production units x Cost per unit
Period costing under variable costing = Fixed manufacturing cost + Administrative cost + S&D cost
Total variable, selling and distribution cost = Sales units × Cost per unit
Sold units = Opening stock + Production – Closing stock
Income Statement under Variable Costing
Particulars |
Amount $ |
|||
Sales revenue (sales units @ $) |
xxxx |
|||
(A) |
xxxx |
|||
Variable cost: |
|
|||
|
Direct materials |
(production units @ $) |
xxxx |
|
|
Direct labour |
(production units @ $) |
xxxx |
|
|
Variable production overhead |
(production units @ $) |
xxxx |
|
|
|
Total variable cost or Cost of production |
xxxx |
|
Add: |
Beginning inventory |
(opening stock @ $) |
xxxx |
|
Less: |
Ending inventory |
(closing stock @ $) |
xxxx |
|
|
|
COGS (B) |
xxxx |
|
|
|
Gross contribution (A – B) |
xxxx |
|
Less: |
Variable administrative cost |
(production units x $) |
xxxx |
|
Less: |
Variable S&D cost |
(sales units x $) |
xxxx |
|
|
|
Net contribution |
xxxx |
|
Less: |
Fixed production cost |
( ± absorption, if any) |
xxxx |
|
Fixed administrative cost |
(production units x $) |
xxxx |
|
|
Fixed S&D cost |
(sales units x $) |
xxxx |
|
|
Net Income |
$xxxx |
Note: If there is under absorption in absorption costing, it is added with fixed manufacturing cost in variable costing
If there is over absorption in absorption costing, it is deducted from fixed manufacturing cost in variable costing
Reconciliation of Difference in Net Cost
If there is no difference in the size of opening stock and closing stock, in such a condition net income of absorption costing and variance costing is same.
The difference between opening stock, closing stock and fixed manufacturing overhead are the main cause of difference in net income.
These differences can be solved by reconciliation.
Where:
Difference in stock units |
= Difference in income ÷ Fixed cost per unit |
According to variable costing, Opening stock in units |
= Closing stock in units − Difference in stock units |
According to absorption costing, Opening stock in units |
= Closing stock in units + Difference in stock units |
|
|
According to variable costing, Closing stock– Opening stock |
= Difference |
According to absorption costing, Opening stock – Closing stock |
= Difference |
Particulars |
Amount |
Net income as per variable costing |
xxxx |
Add: Closing stock (units @ FCPU) |
xxxx |
Less: Opening stock (units @ FCPU) |
(xxx) |
Net income as per absorption costing |
xxxx |
Or
Reconciliation Statement
Particulars |
Amount |
Net income as per absorption costing |
xxxx |
Add: Opening stock (units @ FCPU) |
xxxx |
Less: Closing stock (units @ FCPU) |
(xxx) |
Net income as per variable costing |
xxxx |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 1
The extracted data are given to you:
Opening stock 10,000 units
Sales 60,000 units
Closing stock 20,000 units
Required: Production units
[Answer: 70,000 units]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 2
The extracted data are given to you:
Production 20,000 units
Sales 25,000 units
Required: Stock
[Answer: Opening stock = 5,000 units]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 3
The extracted data are taken from ABC Manufactures Company:
Sales units 9,000 units
Production units 12,000 units
Cost data:
Direct materials 60
Direct labor 40
Variable factory overheads 30
Fixed manufacturing overheads $180,000
Required: Cost of production under variable costing
[Answer: COP = $15,60,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 4
The extracted data are taken from BC Manufactures Company:
Production units 12,000 units
Normal output 9,000 units
Cost data:
Direct materials 60
Direct labor 40
Variable factory overheads 30
Fixed manufacturing overheads $180,000
Required: Cost of production under absorption costing
[Answer: COP = $18,00,000] * FCPU or SFOR = $20
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 5
ABC Manufacturing Company has following extracted data:
Normal output 35,000 units
Production 30,000 units
Opening stock 5,000 units
Closing stock 10,000 units
Cost data per unit:
Direct materials $260,000
Direct labour $350,000
Variable factory overheads $275,000
Factory manufacturing overheads $200,000
Required: Cost of goods sold under variable costing
[Answer: COGS = $735,500]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 6
ABC Manufacturing Company has following extracted data:
Standard fixed overhead rate (SFOR) $7
Production 30,000 units
Sales 35,000 units
Opening stock 10,000 units
Cost data per unit:
Direct materials $260,000
Direct labour $350,000
Variable factory overheads $275,000
Required: Cost of goods sold under absorption costing
[Answer: COGS = $12,77,500] *Closing stock = 5,000 units
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 7
The following extracted information is available:
Net income as per absorption costing $450,000
Opening stock 10,000 units
Closing stock 20,000 units
Normal output was 40,000 units
Fixed manufacturing cost $200,000
Required: Reconciliation statement
[Answer: Net profit as per variable costing = $400,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 8
The following extracted information is available:
Net income as per variable costing $450,000
Opening stock 10,000 units
Closing stock 20,000 units
Normal output was 40,000 units
Fixed manufacturing cost $200,000
Required: Reconciliation statement
[Answer: Net profit as per absorption costing = $500,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 9
Following extracted information is given to you:
Cost of goods sold before adjustment $500,000
Fixed manufacturing cost $125,000
Normal output 25,000 units
Output for the period 30,000 units
Required: Cost of goods sold after adjustment
[Answer: $475,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 10
Following extracted information is given to you:
Cost of goods sold before adjustment $500,000
Fixed manufacturing cost $125,000
Normal output 25,000 units
Output for the period 22,000 units
Required: Cost of goods sold after adjustment
[Answer: $515,000]
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######
VARIABLE COSTING
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 1
Following are data pertaining to month of December of operation for ABC Textile Company related to school dress:
Opening stock 2,000 units |
Administrative expenses: |
Units produced 6,000 units |
Fixed $250,000 |
Normal output 5,000 units |
Variable $250,000 |
Units sold 7,000 units |
|
Selling price per unit $300 |
Selling and distribution expenses: |
Fixed manufacturing cost $200,000 |
Variable (per unit) $20 |
Variable cost per unit: |
Fixed (per unit) $15 |
Direct materials 50 |
|
Direct labor 40 |
|
Factory overheads 30 |
|
Required: (a) Income statement under variable costing; (b) Reconciliation statement
[Answer :(1) Net income = $315,000; (2) $275,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 2
AK Manufacturing Company has reported its income statement under absorption costing technique as under:
Particulars |
Amount |
Amount |
|
Sales revenue (10,000 units x $45) |
|
450,000 |
|
Less: |
Cost of goods sold: |
|
|
|
Beginning inventory (2,000 x $27) |
54,000 |
|
|
Variable cost (9,000 x $23) |
207,000 |
|
|
Fixed mfg. cost (9,000 x $4) |
36,000 |
|
|
Ending inventory (1,000 x $27) |
(27,000) |
(270,000) |
|
Gross margin before adjustment |
|
180,000 |
Less: |
Fixed manufacturing cost under absorbed |
|
4,000 |
|
Gross margin after adjustment |
|
176,000 |
Less: |
Other variable cost |
|
50,000 |
Net income before tax |
|
$126,000 |
Required: Income statement under variable costing technique
[Answer: Net income under variable costing = $130,000;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 3
Following extracted details are given to you by EP Industries:
Normal capacity 200,000 units per year
Standard variable manufacturing expenses $20 per unit
Fixed manufacturing overhead $300,000 per year
Variable selling expenses $2 per unit
Fixed selling expenses $100,000
Unit sale price $25
The operating results for the year ending December of the last year were as follows
Sales 150,000 units
Production 180,000 units
Required: (a) variable costing income statement; (b) Reconciled profit under absorption costing
[Answers: Income under VC = $50,000, under AC = $95,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 4
XYZ Manufacturing Company with normal capacity of 50,000 units supplied you with the following particular:
Production |
55,000 units |
Sale |
60,000 units |
Closing stock |
5,000 units |
Unit variable manufacturing cost |
$6 |
Unit fixed manufacturing overhead |
$3 |
Unit variable selling and administrative cost |
$2 |
Fixed selling & administrative cost |
$90,000 |
Unit selling price |
$15 |
Required: (1) Variable costing income statement; (2) Reconciled profit under absorption costing
[Answers: (1) $180,000; (2) $165,000]
ABSORPTION COSTING
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 5
The extracted cost abstract of EP Manufacturing Company was as follows:
Particulars |
Units cost |
The operations of the year ended December 2021 were: |
|
Direct materials |
$12 |
Opening stock |
10,000 units |
Direct labour |
$3 |
Production |
90,000 units |
Variable manufacturing cost |
$2 |
Sales |
80,000 units |
Variable selling & distribution expenses |
$1 |
Sales price per unit |
$30 |
Budgeted normal output was 100,000 units with $200,000 fixed manufacturing cost. The fixed selling and distribution expenses were $50,000
Required: (1) Income statement under absorption costing; (2) Reconciled profit under variable costing
[Answer: Net profit: A.C = $730,000; V.C = $710,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 6
The summarized data of AM Manufacturing Concern for a capacity output of 50,000 units for a year is reported as:
Items |
Units Cost |
Items |
Units Cost |
Direct materials |
$14 |
Fixed manufacturing overhead |
$75,000 annual |
Direct labour |
$6 |
Fixed selling expenses |
$50,000 annual |
Variable manufacturing overhead |
$4 |
Production |
45,000 units |
Variable selling expenses |
$2 |
Sales |
40,000 units |
Sales price per unit |
$30 |
|
|
Required: (1) Absorption costing income statement; (2) Reconciled profit under variable costing
[Answers: (1) Net income = $42,500; (2) $35,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 7
ABC Manufacturing Company with normal capacity of 20,000 units furnished you the following information:
Beginning inventory units |
3,000 |
Standard variable cost |
$6.50 |
Units produced during the year |
18,000 |
Fixed factory overhead at normal capacity |
$50,000 |
Units sold during the year |
20,000 |
Fixed selling and distribution cost |
$5,000 |
|
|
Unit selling price |
$12 |
Required: (1) Income statement under absorption costing; (2) Reconciled profit under variable costing
[Answers: (1) $50,000; (2) $55,000] *Under absorption = $5,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 8
Following are the references data of month June of operation for XYZ Company:
Opening stock |
15,000 units |
Variable cost: |
|
Units produced |
45,000 units |
Direct materials per unit |
$4 |
Units sold |
50,000 units |
Direct labour per unit |
$2 |
Normal output |
50,000 units |
Factory overheads per unit |
$1 |
Selling price per unit |
$20 |
Administrative |
$50,000 |
Fixed manufacturing cost |
$150,000 |
Selling and distribution per unit |
$1 |
|
|
Fixed cost: |
|
|
|
Manufacturing |
$150,000 |
|
|
Administrative |
$40,000 |
|
|
Selling and distribution |
$30,000 |
Required: (1) Income statement under absorption costing; (2) Reconciliation statement
[Answer: (1) Net income = $315,000; (2) $330,000]
ABSORPTION AND VARIABLE COSTING
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 9
Max Company uses direct costing for internal control purchase and absorption costing for external reporting purpose. The following differences are located while comparing the two statements.
Items |
Variable Costing |
Absorption Costing |
|
Variable manufacturing cost |
$60,000 |
$60,000 |
|
Fixed manufacturing cost charged |
$25,000 |
$30,000 |
|
Fixed selling and administrative cost |
$40,000 |
$40,000 |
|
Variable selling cost per unit |
$2 |
$2 |
|
Selling price per unit |
$30 |
$30 |
|
Management also projected the following data for the inventory:
Beginning inventory units 1,000 |
Sales units 5,000 |
Production units 6,000 |
Closing stock units 2,000 |
Cost of beginning inventory is the same as the cost of production in the period.
Required: Income statement by using absorption costing and variable costing approach
[Answers: Net profit = $30,000; $25,000]
*Over absorption $5,000]
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 1
Fame Readymade Garment has given following data at the end of December 2020; it was anticipated that sales would rise 20% in year 2021. Therefore, production was increased from 20,000 units to meet this expected demand.
Particulars |
Amount |
Sales units during year |
20,000 |
Selling price per unit |
300 |
Direct materials |
45 |
Direct labors |
75 |
Variable manufacturing overheads |
30 |
Variable administrative expenses |
2,50,000 |
Variable selling and distribution expenses |
1,00,000 |
Fixed manufacturing cost for the year |
9,60,000 |
Fixed administrative cost |
6,00,000 |
Fixed selling and distribution cost |
4,00,000 |
All taxes are to be ignored. The beginning inventory of the year was nil.
You are required to prepare profit statement for the year ending December 2021
(1) Net income as per variable costing; (2) Net income as per absorption costing
[Answer: (1) V.C. = $690,000 (2) A.C. = $10,90,000;
* Over absorption = $240,000; Production = 24,000 units]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 2
XYZ Ltd uses direct costing for internal control purposes and absorption costing for external reporting purposes. The company uses the following unit costs for the one product it manufactures:
Projected cost per unit: |
|
Direct materials |
$60 |
Direct labour |
$38 |
Variable manufacturing |
$12 |
Fixed manufacturing cost |
$10 (Based on 10,000 units per month) |
Variable selling and administrative cost |
$8 |
Fixed selling and administrative cost |
$5.60 (Based on 10,000 units per month) |
The projected selling price is $160 per unit. The fixed costs remain fixed within the relevant range of 4,000 to 16,000 units of production.
Management has also projected the following data for the month:
Opening stock 2,000 units
Production 9,000 units
Sales 7,500 units
Required: projected income statement under direct costing and absorption costing.
[Answer: Variable costing: $1,59,000, Absorption costing: $1,74,000;
* Under absorption cost =100,000 – 90,000 = 10,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 3
ABC Manufacturing Company has following data:
Income Statement under Absorption Costing
[For 14,000 units]
Particulars |
Amount |
|||
Sales |
[16,000 @ $80] [A] |
12,80,000 |
||
Manufacturing of goods sold: |
|
|
||
|
Direct materials |
[14,000 units @ $20] |
280,000 |
|
|
Direct labour |
[14,000 units @ $10] |
140,000 |
|
|
Variable production cost |
[14,000 units @ $15] |
210,000 |
|
|
Fixed manufacturing cost |
[14,000 units @ $5] |
70,000 |
|
|
|
Manufacturing cost @ $50] |
700,000 |
|
Add: |
Opening stock |
[3,000 units @ $50] |
150,000 |
|
Less: |
Closing Stock |
[1,000 units @ $50] |
(50,000) |
|
|
|
COGS before adjustment |
800,000 |
|
Add: |
Under absorption of fixed mfg cost |
|
50,000 |
|
|
|
COGS after adjustment (B) |
850,000 |
|
|
|
Gross profit [A –B] |
430,000 |
|
Less: |
Administrative and selling cost: |
|
|
|
|
Fixed |
|
80,000 |
|
|
Variable |
|
50,000 |
130,000 |
Net income |
300,000 |
Required: (a) Income statement under variable costing;
(b) Reconciliation of profit between absorption costing and variable costing.
[Answer: Net income under V.C. = $3,10,000;
* Fixed Manufacturing cost in V.C = $120,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 4
MS Tech (P) Ltd produces and assembles computer components. The following internal data is available:
Income Statement under Variable Costing
For 20,000 units
Particulars |
Amount |
|||
Sales revenue |
[21,000 units @ $100] |
21,00,000 |
||
(A) |
21,00,000 |
|||
Variable cost: |
|
|
||
|
Direct materials |
[20,000 units @ $30] |
6,00,000 |
|
|
Direct labour |
[20,000 units @ $15] |
3,00,000 |
|
|
Variable manufacturing cost |
[20,000 units @ $10] |
2,00,000 |
|
|
Cost of production @ $55) |
11,00,000 |
||
Add: |
Beginning inventory |
[2,000 units @ $55] |
1,10,000 |
|
Less: |
Ending Inventory |
[1,000 units @ $55] |
55,000 |
|
|
COGS (B) |
11,55,000 |
||
|
Gross contribution (A – B) |
9,45,000 |
||
Less: |
Variable selling administrative cost |
|
1,05,000 |
|
|
Net contribution |
8,40,000 |
||
Less: |
Fixed manufacturing cost |
|
420,000 |
|
|
Fixed selling and administrative cost |
|
+ 350,000 |
7,70,000 |
Net income |
70,000 |
Normal capacity for the period is 20,000 units.
Required: (1) Net income under external period; (2) Reconciliation statement for the period
[Answer: Net income under A.C. = $49,000; * FCPU = $21]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 5
The following information is given by DT Manufacturing Company:
Income Statement under Variable Costing
For 27,000 units
Particulars |
Amount |
|||
Sales revenue |
[28,000 units @ $30] |
840,000 |
||
(A) |
840,000 |
|||
Variable cost: |
|
– |
||
|
Direct materials |
[27,000 units @ $5] |
135,000 |
|
|
Direct labour |
[27,000 units @ $8] |
216,000 |
|
|
Variable manufacturing cost |
[27,000 units @ $5] |
135,000 |
|
|
Cost of production @ $18) |
486,000 |
||
Add: |
Beginning inventory |
[3,000 units @ $18] |
54,000 |
|
Less: |
Ending Inventory |
[2,000 units @ $18] |
36,000 |
|
|
COGS (B) |
504,000 |
||
|
Gross contribution (A – B) |
336,000 |
||
Less: |
Variable administrative and selling cost |
|
86,000 |
|
|
Net contribution |
250,000 |
||
Less: |
Fixed manufacturing cost |
|
100,000 |
|
|
Fixed selling and administrative cost |
|
+ 50,000 |
150,000 |
Net income |
100,000 |
Normal capacity for the period is 25,000 units.
Required: (1) Conversion the income statement into absorption costing statement; (2) Reconciliation statement
[Answer: (1) $96,000; (2) $100,000;
* Over absorption = $8,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 6
The following information is available from Nepal Polymers (P) Ltd:
Particulars |
January |
February |
Selling price per unit |
$100 |
$100 |
Direct materials and labour per unit |
$25 |
$25 |
Variable manufacturing cost per unit |
$15 |
$15 |
Variable selling and administrative cost per unit |
$10 |
$10 |
Fixed manufacturing cost |
$140,000 |
$140,000 |
Fixed selling and administrative cost |
10% of sales |
10% of sales |
Units |
January |
February |
Production units |
6,000 |
8,000 |
Sales units |
5,500 |
7,000 |
Normal output is 7,000 units per month
Required: (1) Income statement under variable costing; (2) Income statement under absorption costing
[Answer: (1) V.C. = $80,000 and $140,000;
(2) A.C. = $90,000 and $160,000;
* Closing stock in Jan = 500 units; Feb = 1,500 units;
*Under absorption in January = $20,000;
Over absorption in February = $20,000
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 7
A manufacturing company provides you the following data for three accounting periods:
Standard capacity is 10,000 units per month. Fixed manufacturing costs budgeted per month $400,000
Production, sales and inventory changes were as follows:
Period |
Standard capacity |
Produced units |
Sold units |
|
January |
90% |
9,000 |
9,000 |
|
February |
110% |
11,000 |
9,000 |
|
March |
85% |
8,500 |
10,000 |
|
Standard capacity utilized by 10,000 units
Other information:
Administrative and selling expenses were: |
Variable cost per unit was as following: |
Variable $20 per unit |
Materials $40 |
Fixed selling price per period $300,000 |
Direct labour $40 |
|
Manufacturing $20 |
|
Selling price per unit $200 |
Determine the income under:
(1) Absorption costing for three months; (2) Marginal costing for three months
(3) Reconciliation of the difference between the net incomes reported under two concepts.
[Answer: (1) $20,000, $100,000, $40,000 (2) $20,000, $20,000, $100,000]
* Absorption: Under in January = $40,000; Over in February = $40,000;
Under in March = $60,000]
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