Question

Bagawan Berhad started producing Product A on 1 January 2018. The unit selling price and cost of Product A for the month of January 2018 as follows: (RM/unit) Selling price 5.90 Direct material 1.20 Direct labour 1.40 0.70 Variable production overheads Variable selling and administrative expenses 0.15 i) Fixed production overheads were budgeted at RM308,000 per month and were absorbed based on the number of units produced. Actual fixed production overheads of Product A were the same as the absorbed fixed production overheads for the month. Budgeted production and budgeted sales were the same at RM280,000 units per month iii) Actual production and actual sales of Product A for the month were 250,000 units and 220,000 units respectively. iv) v) Actual fixed selling and administrative expenses were RM110,000. There were no closing direct materials and work-in-progress inventories of Product A as at 31 January 2018 You are required: a) Prepare the Income Statement for the month ended 31 January 2018 using absorption costing (20 marks)

Answer 1

BAGAWAN BERHAD INCOME STATEMENT (UNDER ABSORPTION COSTING) FOR THE MONTH ENDED JANUARY 31 2018
Sales revenue (220000*5.9)	1298000
less:cost of goods sold (220000*4.532)	(997040)
Gross margin	300960
less:selling and administrative cost	(143000)
Net income	157960

working:

Product cost under absorption costing:

Direct material	1.2
Direct labor	1.4
Variable overhead	.70
Fixed overhead [308000/250000]	1.232
Unit cost	4.532

b)selling and administrative cost = [.15*220000]variable +110000

                        = 33000+110000

                         = 143000