Question

Variable vs. Absorption Costing Selling price per unit 50.00 No Video for this worksheet $ Mandturing cost Variable per unit produced: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year 11.00 6.00 REQUIRED: Calculate the unit cost and prepare a traditional Income statements using absorption costing. Calculate the unit cost and prepare a variable costing Income statement. Check your work using the values on the check figure tab. $ 120,000 Selling and administrative expenses Variable per unit sold Fixed per year $ 4.00 70,000 Units in beginning inventory Units produced during the year Units sold during the year Unitsin ending inventory 10,000 8.000 8,000 10,000 Compute the cost per unit using Variable Costing Year 2 Year 2 Compute the cost per unit using Absorption Costing Year 1 Direct materials Direct labor Variable manufacturing overhead Flowed manufacturing overhead Absorption costing unit product cost Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost Construct the Absorption Costing Income Statement Year 1 Year 2 Construct the Variable Casting Income Statement Year 1 Year 2 Sales Cost of goods sold Gross margin Cost of goods sold Gross Profit Selling and administrative expenses Net operating income Selling and administrative expenses Net operating income Value of ending inventory Value of ending inventory Somente a ntian resting with variable casting: How much higher is year 1 NOI under absorption costing? How much higher is the value of ending Inventory? Why is the year 1 net income higher under absorption costing? What is the total two year net income under absorption costing? What is the total two year net income under variable costing?

Answer 1

Particulars Units in Beginning inventory Units produced during the year Units sold during the year Units in Ending Inventory Year 1 Year 2 2,000 10,000 8,000 8,000 10,000 2,000 (0+10000-8000) (2000+8000-10000) Compute the Cost Per Unit using Absorption Costing Year 1 Year 2 11 11 6 Particulars Direct materials Direct labor Variable Manufacturing Overheads Fixed Manufacturing Overheads (120000/10000) Absorption Costing unit product cost 3 15 (120000/8000) 35 Compute the Cost Per Unit using Variable Costing Year 1 Year 2 11 Particulars Direct materials Direct labor Variable Manufacturing Overheads Variable Costing unit product cost 6 6 20

Construct the Absorption Costing Income Statement Particulars Sales (8000*50) Cost of Goods Sold (8000 *32) Gross Margin Selling and adminstrative expenses (8000*4)+70000 Net Operating Income Year 1 400,000 256,000 144,000 102,000 42,000 Year 2 500,000 (10000*50) 350,000 (10000*35) 150,000 110,000 (10000*4+70000) 40,000 Value of Ending Inventory (2000*32) 64,000 Construct the Variable Costing Income Statement Particulars Sales (8000*50) Cost of Goods Sold (8000 *20) +120000 Gross Margin Selling and adminstrative expenses (8000*4)+70000 Net Operating Income Year 1 400,000 280,000 120,000 102,000 18,000 Year 2 500,000 (10000*50) 320,000 (10000*20)+120000 180,000 110,000 (10000*4+70000) 70,000 Value of Ending Inventory (2000*20) 40,000

E Value of Ending Inventory (2000*20) 40,000 O O O O Compare absorption costing with Variable Costing How much higher is year 1 NOI under absorption costing How much higher is the value of ending inventory 24,000 (42000-18000) 24,000 (64000-40000) 85 Why is the year 1 net income higher under absorption costing? It is higher under absorption costing mainly due the fixed manufacturing overhead which has become the part of manufacturing cost per unit while calculating the total manufacturing cost What is the total two year net income under absorption costing? What is the total two year net income under variable costing ? 82,000 88,000