Question

How to prepare an income statement for profit using full costing?

Answer 1

Ans.	Full costing is also known as Absorption costing. In The Absorption costing income statement costs are seperatly mentioned based on their cost
	function whether it is product or period.
	All product costs (fixed and variable) are subtrated from sales to calculate gross profit then all
	period costs (fixed and variable) are subtracted from gross profit to calculate net income under
	absorption costing method.
	First of all, the unit product cost is calculated which is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	Unit product cost under Absorption Costing:
	Direct materials	XXX
	Direct labor	XXX
	Variable Overhead per unit	XXX
	Fixed overhead per unit	XXX
	Product Cost per unit	XXX
	*Fixed overhead per unit = Fixed overhead / Units produced
	*Absorption costing income statement format is as follows:
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales		XXX
	Less: Cost of goods sold
	Opening inventory	XXX
	Add: Cost of goods manufactured	XXX
	Cost of goods available for sale	XXX
	Less: Ending inventory	XXX
	Cost of goods sold (total)		XXX
	Gross margin		XXX
	Selling & Administrative expenses:
	Fixed	XXX
	Variable	XXX
	Total Selling and administrative expenses		XXX
	Net operating income		XXX
	* Cost of goods manufactured   = Units produced * Absorption costing unit product cost
	*Ending inventory   = (Units produced - Units sold) * Absorption costing unit product cost
	*Variable selling and administrative cost = Variable selling and administrative cost per unit * Units sold