Question

Question #5 Ali Ltd makes and sells one product, the standard production cost of which is as follows for one unit: Rs. Direct labour (3 hours at Rs.6 per hour) 18 Direct material (4 kgs at Rs.7 per kg) 28 Variable factory Overhead Fixed factory overhead Standard production cost MARGINAL AND ABSORPTION COSTING 4

plz solve step by step

Answer 1

a. Absorption Costing

Product Cost
	31.03.2004	30.09.2004
Direct Materials	$            238,000	$                196,000
Direct Labor	$            153,000	$                126,000
Variable Manufacturing Overhead	$              25,500	$                  21,000
Fixed Manufacturing Overhead	$            160,000	$                160,000
Total manufacturing Cost	$            576,500	$                503,000
Units Produced	8500	7000
Product Cost per unit	$                67.82	$                     71.86

Income Statement

	31.03.2004	30.09.2004
Sales Revenue	$            980,000	$            1,120,000
Cost of Goods Sold
Beginning Inventory	$                       -	$                101,735
Plus Cost of Goods Manufactured	$            576,500	$                503,000
Less Ending Inventory	$            101,735	$                  35,929
Cost of Goods Sold	$            474,765	$                568,807
Gross Margin	$            505,235	$                551,193
Variable Selling Expenses	$            196,000	$                224,000
Fixed Selling Expenses	$              90,000	$                  90,000
Net Operating Income	$            219,235	$                237,193

Ending Inventory = Units in ending Inventory x Product cost per unit

Variable Costing

Product Cost	31.03.2004	30.09.2004
Direct Materials	$                      28	$                           28
Direct Labor	$                      18	$                           18
Variable Manufacturing Overhead	$                         3	$                             3
Product Cost per unit	$                      49	$                           49

	31.03.2004	30.09.2004
Sales	$            980,000	$            1,120,000
Cost of Goods Sold
Beginning Inventory	$                       -	$                  73,500
Plus Cost of Goods Manufactured	$            416,500	$                343,000
Less Ending Inventory	$              73,500	$                  24,500
Cost of Goods Sold	$            343,000	$                392,000
Variable Selling Expenses	$            196,000	$                224,000
Contribution Margin	$            441,000	$                504,000
Fixed Manufacturing OH	$            160,000	$                160,000
Fixed Selling Expenses	$              90,000	$                  90,000
Operating Income	$            191,000	$                254,000

b. Reconciliation

	31.03.2004
Income as per Variable Costing	$            191,000
Add : Fixed Manufacturing Overhead carried forward	$              28,235
Income as per Absorption Costing	$            219,235

Fixed Manufacturing Overhead carried forward = Units in ending inventory x Fixed Overhead cost per unit produced

	30.09.2004
Income as per Variable Costing	$            254,000
Add : Fixed Manufacturing Overhead carried forward	$              11,429
Less : Fixed Manufacturing Overhead released	$              28,235
Income as per Absorption Costing	$            237,193

Fixed Manufacturing Overhead carried forward = Units in ending inventory x Fixed Overhead cost per unit produced