Question

(10 points) Income statements, spending and capacity variances Kegalito Pty Ltd makes and sells a single product which sells for $5.00 per unit. Actual results for the year ended 30 June 2015 were: Finished goods inventory 1 July 2014 Produced Finished goods inventory 30 June 2015 Units 45 000 368 000 48 000 Costs in total Direct material Direct labour Variable factory overhead Fixed factory overhead Variable selling and administrative Fixed selling and administrative 147 200 110 400 158 240 128 800 365 000 105 000 Unit costs have remained constant for some time so finished goods inventory at 1 July 2014 is to be valued at the same unit cost as current production. Kegalito Pty Ltd applies overhead to production on the basis of normal capacity, which is 375 000 units per annum. Budgeted fixed factory overhead was $135 000 and budgeted variable factory overhead was $157 500.

Answer 1

$	Actual	Budgeted	Standard absorption rates
Direct material	147200		(Budgeted cost / normal capacity)
Direct labour	110400
Variable factory overheads	158240	157500	0.42
Fixed factory overheads	128800	135000	0.36
Variable sales and administrative overheads	365000
Fixed sales and administrative overheads	105000
(No. Of units)
Normal capacity	375000
Actual production	368000
Finished goods- opening	45000
Finished goods – closing	48000
Sales	365000	(Op. Stock + Production – closing stock)
Sale price	5
Total sales	1825000	(Sales units * sale price)
a. Unit Cost
$	Direct costing	Absorption costing
Direct material	147200	147200
Direct labour	110400	110400
Variable factory overheads	154560	154560	(calculated at standard rate)
Fixed factory overheads	0	132480
Cost of manufacturing	412160	544640
No. of units	368000	368000
Cost of manufacturing per unit	1.12	1.48
Variable sales and administrative overheads	365000	365000
Fixed sales and administrative overheads	0	105000
Total sales and administrative overheads	365000	470000
No. of units sold	365000	365000
Cost per unit	1	1.29
Total cost per unit	2.12	2.77
b. and c. Income Statement
	Direct costing	Absorption costing
Income	1825000	1825000
Less: Cost of sales	773800	1010200	(Total cost per unit * no. Of units sold)
	1051200	814800
Less: Period costs
Factory overheads	132480
Sales and administrative overheads	105000
Net profit	813720	814800
d. Reconciliation
Net profit as per Direct Costing		813720
Add: Fixed factory overheads absorbed in closing stock		1080	(no. Of units added to closing stock * standard fixed factory overhead absorption rate)
Net profit as per Absorption costing		814800