Question

Question 1 Ryan Pty Ltd produces and sells a single product and uses predetermined overhead rates based on normal capacity to apply overhead. At 1 July 2014 it had a finished goods inventory of 20,000 units. Management would like a comparison with direct costing so as to be able to evaluate its variable costs more easily. Beginning inventory had the same unit cost as inventory produced during the year. The company annual record shows: Normal Capacity Production (actual) Units 96,000 100,000 Sales (actual) 90,000 Budgeted Costs Fixed Factory Overhead Variable Factory Overhead 264,000 182,400 22.00 Actual Selling Price Per Unit Actual Variable Costs Per Unit - Direct Material - Direct Labour - Factory Overhead - Selling and Administration Expenses 5.00 5.00 2.00 3.00 Actual Fixed Costs in Total - Factory Overhead - Selling and Administrative Expense 300,000 80,000 Required: (a) Unit cost to value closing inventory under both Direct and Absorption Costing. (b) Income Statement for year ended 30 June 2015 using Absorption Costing. (c) Income Statement for year ended 30 June 2015 using Direct Costing. (d) Reconcile the Net Profits derived under both methods e) How the product costs is treated differently in Direct & Absorption costing?

Answer 1

PAGE NO DATE RACENO Direct Coating method 19.50.000 Tuoma. Statement (Absolon Cotivy($) cakulation of why wer necovay Ob Overhead during the year 1980 oro Socer 5,00,000 sales dus: Direct walezial Direct Labour Factosy Ojcznad (Novokle) 2,64,000 96000 12.ecor 500,000 A) Sales 90,000 x 22 destDirect material 100,000 X 5 Direct Labour 100,00 5 Factory Overhead (variable) Factory Overhead Fixed) Budgeted Exed Factory overhead Budgeted output 264000215 Absorption Rate = 96000 desi 1.2.0.600 to,80,000 closing stock 10,x12 5. 000 1,90,000 2675,000 14.65,000 3.900 Add a fixed Factory 300,000 nelegd Nosiedle selling 270,000 Adm Exp Fixed Dollag sdm 80.000 Exp 2,75,000 Atkal ford Foday Overhead = Lers Alesented cost 2.751,60920 a dor Olesa buon debe closing Stock 10,000 X 14.65 * 1,46,500 OO. 11.30,000 25 000 13,18,300 2,50,600 Production Coxt ol 90000 Us 82400 2 170,000 Ad Justed Profit Reconcilation of Profit Profit as por losting method Addir closing stock Difference (146500 - 120.00) 96000 Budgetfd Gen variokle. Foday Onthead Budgeted outkut Abocttion Rate = 182400 96000 - variable selling. EXP 3490,000 Fixed selling Exp o 80,000 log 2,50.000 26500. (B cost ob. seles_ 16,69,500 un Actual variable Fixed Overhead des Abrorption cost 1194 10000 Ovchi vinde ellerorbtion 2:16,500 2,00.000 1.90.000 10.000 OV) Adjusted Profft (A-B) - Tudy absorption ck Overhead Adjusted profit 311500 35000 376,500 2005. 1 unit cost under unit Cost under absorption Costing Direct Clesting is is $14.65 bu unit $12 par unit-