Question

QUESTION 1 (20 MARKS) da new division to manufacture and sell specially designed division's monthly costs are shown in the schedule below: Teratak Enterprise has just organized a new e-tables for personal computers. The division RM86 RM10 Manufacturing costs: Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Selling and administrative cost: Variable Fixed RM4 RM240,000 15% of sales RM160,000 perations, Teratak Enterprise produced 4,000 units and sold 3,200 units. During the current year operations, Teratak Enterprise produced 4,000 uni The selling price of the company's product is RM250 per unit. Required: a) Compute the unit product cost under: i) Absorption costing ii) Variable costing (5 marks) Prepare an income statement for the month using absorption costing. b) (5 marks) Prepare a contribution format income statement for the month using variable costing. (6 marks) Reconcile the absorption costing and variable costing net operating income. (4 marks) Page 4 of 8

Answer 1

Unit product cost under Absorbtion costing and Variable costing :- Absorbtion Particulars Costing Direct materials 86.00 Direct labor 10.00 Variable manufacturing overhead 4.00 Fixed manufacturing overhead (240000/4000) 60.00 Unit product cost 160.00 Variable Costing 86.00 10.00 4.00 100.00 Determination of Net Income under Absorbtion costing system: Particulars Amount RM 800,000 640,000 640,000 128,000 Sales @250 per unit Less: Cost of goods sold Beginning inventory Add: Cost of goods manufactured (4000*160) Goods available for sales Less: Ending inventory (4000-3200)*160 Cost of goods sold Gross margin Less: Selling and Admin expenses Variable selling and administrative expenses (15%*800000) Fixed Selling and Administrative expenses Total Fixed Expenses Operating Income 512,000 288,000 120,000 160,000 280,000 8,000

Determination of Net Income under Variable costing system: Particulars Amount RM 800,000 400,000 400,000 80,000 320,000 Sales Less: Cost of goods sold Beginning inventory Add: Cost of goods manufactured (4000*100) Goods available for sales Less: Ending inventory (4000-3200)*100 Cost of goods sold Manufacturing margin Less: Variable marketing expenses (800000*15%) Gross margin Less: Fixed expenses Fixed manufacturing expenses Fixed Selling and Administrative expenses Total Fixed Expenses Operating Income 480,000 120,000 360,000 240,000 160,000 400,000 (40,000) Reconciliation of Variable costing and Absorbtion costing Income (Loss) :- Particulars Amount RM Variable costing net operating income/loss) (40,000) Add: Fixed manufacturing overhead in ending inventory 48,000 deffered to next periods amounting to (4000-3200)*(160-100) Absorbtion costing net operating income 8,000