Question

PA5-5 (Algo) Comparing Full Absorption and Variable Costing [LO 55-1] Consider the following information for Presidio Inc.'s most recent year of operations. $ Number of units produced Number of units sold Sales price per unit Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per unit ($270,940 + 2,300 units) Total variable selling expenses ($13 per unit sold) Total fixed general and administrative expenses 2,300 1,450 620.00 60.00 90.00 40.00 117.80 19,850.00 73,000.00 Required: 2-a. Complete a full absorption costing income statement for Presidio. Assume there was no beginning inventory. 2-b. Complete a variable costing income statement for Presidio. Assume there was no beginning inventory. 3. Compute the difference in profit between full absorption costing and variable costing. Complete this question by entering your answers in the tabs below. Req ZA Req 2B Req3 Complete a full absorption costing income statement for Presidio. Assume there was no beginning inventory. Presidio, Inc. Full Absorption Income Statement Ending Inventory Cost of Goods Sold Cost of Goods Sold Gross Margin Less: Non-Manufacturing Expenses Ending Inventory Ending Inventory Cost of Goods Sold Cost of Goods Sold Net Operating Income < Req 2A Req 28 >

Answer 1

Working: Unit Product cost under Full Costing and Variable costing Full absorption Costing Direct Material $ 60.00 $ Direct Labor $ 90.00 $ Variable Manufacturing Overhead $ 40.00 $ Fixed Manufacturing Overhead $ 117.80 $ Unit Product cost $ 307.80 $ Variable Costing 60.00 90.00 40.00 190,00 1 Income Statement under Full absorption costing Sales Cost of Goods Sold Less $ $ $ 899,000 446,310 452,690 Less Gross Margin Less: Non manufacturing expense Selling Expense General & Administrative expense Net Operating Income $ $ $ 18,850 given 73,000 given 360,840 Sales = Units Sold x Selling Price per unit = 1450 x 620 = 899000 COGS = Units Sold x Unit Product Cost = 1450 x 307.80 = 446310 2 Income Statement under Variable Costing $ 899,000 less 275,500 Sales Variable Expense: Variable cost of goods sold Variable Selling expense Contribution Margin Fixed Expense: Fixed Manufacturing Overhead Fixed general & administrative expense Net Operating Income $ $ $ 18,850 given 604,650 less $ $ $ 270,940 given 73,000 given 260,710 Variable COGS = Units Sold x Unit Product Cost =1450 x 190 = 275500 In full costing Fixed overhead per unit is taken into consideration and in variable costing total fixed overhead is considered. So there is difference in income of both the methods. 3 Difference in profit of variable & full costing Net income under full absorption costing Less Net operating under Variable costing Difference $ $ $ 360,840 260,710 100,130 The difference is due to fixed overhead, in absorption costing fixed overhead of units sold is considered while in variable costing total fixed overhead of units produced is considered. The difference is due to Fixed MOH deffered to ending inventory = 850 units x $117.80 = 100130 is equal to difference between income under both costing method. (Ending Inventory = units produced - units sold = 2300 - 1450 = 850)