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Roberts, which began business at the start of the current year, had the following data: Planned and actual production: 40,000 units Sales: 37,000 units at $15 per unit Production costs: Variable: $4 per unit Fixed: $260,000 Selling and administrative costs: Variable: $1 per unit Fixed: $32,000 a) Prepare a variable costing statement. b) Prepare an absorption costing statement. c) Reconcile the two. lb. Absorption costing sta Variable casting statement Sales 555000 00نگی 0 less: es (37000x1d (37000x15) cogis 388500

Answer 1

Solution of the above problem is as under:

Variable Costing Income Statement
Particulars	Working ($)	Amount ($)
Sales Revenue	37000 X $15	555000
Less: Cost of Goods Sold
Opening Inventory: Nil	0
Add: Purchases (40000 X $4)	160000
Less: Closing Inventory (3000 X $4)	-12000	-148000
Gross Contribution Margin		407000
Less: Variable Selling and Administrative Cost	37000 X $1	-37000
Contribution Margin		370000
Less: Period Expenses
Fixed Production Cost	260000
Fixed Selling and Administrative Cost	32000	-292000
Net Operating Income		78000

Absorption Costing Income Statement
Particulars	Working ($)	Amount ($)
Sales Revenue	37000 X $15	555000
Less: Cost of Goods Sold
Opening Inventory: Nil	0
Add: Cost of Goods Manufactured (40000 X $10.5*)	420000
Less: Closing Inventory (3000 X $10.5*)	-31500	-388500
Gross Profit		166500
Less: Selling and Administrative Costs
Variable Selling and Administrative Cost	37000
Fixed Selling and Administrative Cost	32000	-69000
Net Operating Income		97500

Working Note:

*Production Expenses per Unit

Variable Expenses + Fixed Expenses

$4 + ($260000/40000)

$ (4+6.5)

$10.5

The net operating income under absorption costing is $19500 more than the net operating income under variable costing. When production is more than sales , the fixed manufacturing overhead is deferred in inventory that causes a higher net operating income under absorption costing than under variable costing. The reconciliation of net operating income is given below:

Reconciliation Statement
Particulars	Amount ($)
Net Operating Income under Absorption Costing	97500
Net Operating Income under Variable Costing	78000
Difference in Net Operating Income	19500
Change in Inventory (Closing Stock - Opening Stock)	3000 Units
(that is 3000 - 0)
Fixed Production Expenses deferred in Inventory (3000*$6.5*)	19500