Question

Gulliver Company manufactures and sells one product and uses FIFO system. The following information provided by the company.

16. How much is the net income under Absorption Costing Year 2 a. P1.921,000 c. P2,008.750 e. None of the above b. P1.791.000

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Answer #1
Variable costs per unit:
Direct materials=Total/Units produced=1320000/8000=P 165
Direct labor=Total/Units produced=480000/8000=P 60
Variable manufacturing cost=Total/Units produced=600000/8000=P 75
Variable selling and admin cost=Total/Units sold=2220000/6000=P 370
16 Unit product cost:
Year 1 Year 2
Direct materials 165 165
Direct labor 60 60
Variable manufacturing cost 75 75
Fixed manufacturing overhead 202.5 216
(Allocated based on units produced) (1620000/8000) (1620000/7500)
Total 502.5 516
Beginning inventory for year 2=Units produced in year 1-Units sold in year 1=8000-6000=2000 units
Ending inventory for year 2=Beginning inventory for year 2+Units produced in year 2-Units sold in year 2=2000+7500-6500=3000 units
Net income:
P P
Sales revenue (6500*1500) 9750000
Less:Cost of goods sold
Beginning inventory (2000*502.5) 1005000
(Beginning inventory*Unit product cost for year 1)
Add:Cost of units manufactured (7500*516) 3870000
(Units produced*Unit product cost for year 2)
4875000
Less:Ending inventory (3000*516) 1548000
(Ending inventory*Unit product cost for year 2)
Cost of goods sold 3327000
Gross profit 6423000
Less:Selling and admin cost
Variable (6500*370) 2405000
(Units sold*Variable cost per unit)
Fixed 2070000 4475000
Net income 1948000
Answer is
d. P 1948000
17 Net income:
P P
Sales revenue (6500*1500) 9750000
Less:Variable costs
Direct materials (6500*165) 1072500
Direct labor (6500*60) 390000
Variable manufacturing cost (6500*75) 487500
Variable selling and admin cost (6500*370) 2405000 4355000
Contribution margin 5395000
Less:Fixed costs
Manufacturing overhead 1620000
Selling and admin cost 2070000 3690000
Net income
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