Absorption & Direct Costing
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Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end) COST OF GOODS SOLD Adjustment of Fixed (over) / under applied Factory overhead COST OF GOODS SOLD (Actual) Gross Profit Less: Marketing and administrative Expenses Operating Income
xxxxx xxx xxx xxx xxx xxxxx xxx xxxxx (xxx) xxxx
xxx/(xx) (xxxxx) xxxx (xxx) xxxx
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold (Variable): Direct Material Direct Labor Variable Factory overhead Variable Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
xxxxx xxx xxx xxx xxxxx xxx xxxxx (xxx)
COST OF GOODS SOLD (Variable)
(xxxx)
GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses
(xxx)
CONTRIBUTION MARGIN
xxxx
Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME
xxxx
xxx xxx
(xxx) xxxxxx
3rd. Quarter FG (at start) Add: Produciton (100,000 x 80%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)
40,000 80,000 120,000 (80,000) 40,000
4th Quarter" FG (at start) Add: Produciton (100,000 x 50%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)
40,000 50,000 90,000 (80,000) 10,000
1st Quarter: FG (at start) Add: Produciton (100,000 x 110%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)
10,000 110,000 120,000 (80,000) 40,000
2*2 Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead
(7,500 units x $ 80)
600,000
(9,000 units x $ 30) (9,000 units x $ 19) (9,000 units x $ 6) (9,000 units x $ 5)
270,000 171,000 54,000 45,000
Manufacturing Cost / Cost of Goods Manufactured Add: Finished goods (at start) (2,000 units x $60) Total Finished goods available for Sale Less: Finished goods (at end) (3,500 units x $ 60)
540,000 120,000 660,000 (210,000)
COST OF GOODS SOLD
450,000
Adjustment of Fixed (over) / under applied Factory overhead
(1,000 units x $5) ($50,0000 - $ 45,000)
5,000
COST OF GOODS SOLD (Actual)
(455,000)
Gross Profit Less: Marketing and administrative Expenses Variable marketing and admin. Expenses (7,500 units x $4) Fixed marketing and admin. Expenses (10,000 units x $2.80) OPERATING INCOME
Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 540,000 / 9,000 units = Rs. 60 OR (30+ 19 + 6 + 5)
145,000 30,000 28,000
(58,000) 87,000
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold (Variable): Direct Material Direct Labor Variable Factory overhead
(7500 units x Rs. 80) (9000 units x Rs. 30) (9000 units x Rs. 19) (9000 units x Rs. 6)
Variable Cost of Goods Manufactured Add: Finished goods (at start) (2000 units x 55) Total Finished goods available at variable cost Less: Finished goods (at end) (3500 units x 55)
600,000 270,000 171,000 54,000 495,000 110,000 605,000 (192,500)
COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses
(412,500) 187,500 (7500 units x 4)
(30,000)
CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead (10,000 units x 5) Fixed Marketing and Adminstrative expenses (10,000 units x 2.80) OPERATING INCOME
157,500
50,000 28,000
(78,000) 79,500
Required no. 3: Reconcilation Statement of Operating Income: Method # 1: Operating Income: Absorption Costing Direct Costing Difference Inventory Changes: Absorption Costing (Increase) (210,000 - 120,000) Direct Costing (Increase) (192,500 - 110,000) Difference in inventory Method #2: Diffence in Inventory in units Ending Inventory (in units) 3,500 Opening Inventory (in units) 2,000 Difference in units (Decrease in FG) Fixed FOH rate
Net income - Absorption costing Net income - Direct costing Method # 3: Net income - Absorption costing Less: Increase in FG, increase in unit cost by 5 (1500 units x Rs 5) Net income - Direct Costing
1,500 5 7,500 87,000 79,500 7,500 87,000 (7,500) 79,500
87,000 79,500 7,500 90,000 82,500 7,500
Units Units Units
2*3 Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Fixed manufacturing cost Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end)
(30,000 units x Rs. 15) (24,000 units x 5) (24,000 units x 6)
(10,000 units x 11) (4,000 units x 11)
COST OF GOODS SOLD Adjustment of Fixed (over) / under applied Factory overhead
120,000 144,000 264,000 110,000 374,000 (44,000) 330,000
(6,000 units x 6)
COST OF GOODS SOLD (Actual) Gross Profit Less: Marketing and administrative Expenses OPERATING INCOME
Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 264,000 / 24,000 units = Rs. 11
36,000
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Variable Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
(30,000 units x Rs. 15) (24,000 units x 5)
(10,000 units x 5) (4,000 units x 5)
120,000 120,000 50,000 170,000 (20,000)
COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses
(7,500 units x 4)
CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME
180,000 25,000
Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing Difference Inventory Changes: Absorption Costing (Increase) Direct Costing (Increase) Difference in inventory Diffence in Inventory in units Ending Inventory (in units) Opening Inventory (in units) Difference in units Fixed FOH rate
450,000
(366,000) 84,000 (27,000) 57,000
450,000
(150,000) 300,000 (2,000) 298,000
(205,000) 93,000
w*2000 Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Fixed manufacturing cost Cost of Goods Manufactured Total Finished goods available Less: Finished goods (at end)
(19,000 units x Rs. 67)
1,273,000
(20,000 units x 42.50) (20,000 units x 10.50)
850,000 210,000 1,060,000 1,060,000 (53,000)
(1,000 units x 53)
COST OF GOODS SOLD
(1,007,000)
Gross Profit Less: Marketing and administrative Expenses Fixed marketing and admin expenses Variable marketing and admin expenses
266,000 150,000 114,000
OPERATING INCOME
(264,000)
2,000
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Variable Cost of Goods Manufactured Total Finished goods available at variable cost Less: Finished goods (at end)
(19,000 units x Rs. 67)
1,273,000
(20,000 units x 42.50)
850,000
(1,000 units x 42.5)
850,000 850,000 (42,500)
COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses Overtime premium - Admin Expenses
(807,500) 465,500 (19,000 units x Rs 5)
95,000 19,000
(114,000)
CONTRIBUTION MARGIN (NET) Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME
351,500
210,000 150,000 Net Loss
(360,000) (8,500)
W-1:
Calculation of variable cost per unit: 1. Direct material used: Raw material (at start) Add: Purchases during the year Raw material available for use Less: Raw material (at end)
80,000 460,000 540,000 (40,000)
Direct material used
500,000
2. Direct labour used: Total factory wages Less: Overtime premium - Management Exp
359,000 (19,000)
Direct labour used 3. Factory overhead: Outstanding FOH (at end) Add: Payment made Less: Outstanding FOH (at start) Factory overhead used Less: Fixed Standing charges
340,000
6,000 18,000 24,000 (4,000) 20,000 (10,000) 10,000
Total Manufacturing Cost / COGM Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 850,000 / 20,000 units = Rs. 42.50
850,000
W-1
Fixed Cost: Fixed manufacturing Expenses: a) Water & Electric - Standing charges b) Factory Depreciation c) Lease rental payment - Factory Fixed Manufacturing Cost
(140,000 - 20,000)
Fixed Admin and Marketing Expenses: a) Advertisement cost b) Salaries Expenses Fixed Admin and Marketing Expenses
Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing Difference Inventory Changes: Absorption Costing (Increase) Direct Costing (Increase) Difference in inventory Diffence in Inventory in units Ending Inventory (in units) Opening Inventory (in units) Difference in units Fixed FOH rate
10,000 80,000 120,000 210,000
30,000 120,000 150,000
22-5 Working: Equivalent Production Unit: Units completed and transferred out Less: Units in process (at start) - all units
Material 66,000 (2,000)
Conversion 66,000 (2,000)
Units started and completed during the period
64,000
64,000
Add: Units in process (at start) - work this period
-
Add: Units in process (at end) - work this period EQUIVALENT PRODUCTION UNIT
1,000 65,000
1,000 500 65,500
ABSORPTION
Cost of Goods Sold: Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead MANUFACTURING COST
(65,000 units x Rs. 8) (65,500 units x Rs. 9) (65,500 units x Rs. 4) (65,500 units x Rs 2)
Add: Work in process (at start) Direct material (2000 units x 100% x 8) Conversion (2000 units x 50% x 15) Total Work in process
16,000 15,000
Less: Work in process (at end) Direct material (1000 units x 100% x 8) Conversion (1000 units x 50% x 15)
8,000 7,500
COST OF GOODS MANUFACTURED Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end) COST OF GOODS SOLD Adjustment of (over) / under applied Factory overhead COST OF GOODS SOLD (Actual)
(260,000 x $2)
520,000 589,500 262,000 131,000 1,502,500
31,000 1,533,500
(15,500) 1,518,000
(1000 units x 23) (1500 units x 23)
23,000 1,541,000 (34,500) 1,506,500
5,700 1,512,200
W-1
Adjustment of Under applied FOH Actual FOH Applied FOH
398,700 393,000
UNDER APPLIED FOH
OR
5,700
Fixed FOH Applied FOH Actual FOH
131,000 135,000 Difference
4,000
Variable FOH Applied FOH Actual FOH
262,000 263,700 Difference
1,700 5,700
Format of Income statement under Direct costing DIRECT Cost of Goods Sold (Variable) Direct Material Direct Labor Variable Factory overhead
(65,000 units x Rs. 8) (65,500 units x Rs. 9) (65,500 units x Rs. 4)
Variable Manufacturing Cost
1,371,500
Add: Work in process (at start) Direct material (2000 units x 100% x 8) Conversion (2000 units x 50% x 13)
16,000 13,000
Total Work in process
29,000 1,400,500
Less: Work in process (at end) Direct material (1000 units x 100% x 8) Conversion (1000 units x 50% x 13)
8,000 6,500
COST OF GOODS MANUFACTURED (VARIABLE)
Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
520,000 589,500 262,000
(14,500) 1,386,000
(1000 units x 21) (1500 units x 21)
COST OF GOODS SOLD (Variable) Add: Adjustment of variable FOH cost / Controllable variance / Variable Variance Applied FOH 262,000 Actual FOH 263,700 Difference COST OF GOODS SOLD (Variable)
21,000 1,407,000 (31,500) 1,375,500
1,700 1,377,200
Absorption Sales Less: COGS
1,600,000 (1,512,200)
Gross profit / Net income
87,800
Direct Sales Less: COGS (Variable) Gross C.M / Net C.M.
1,600,000 (1,377,200) 222,800
Less: Fixed cost
(135,000) 87,800
Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing
87,800 87,800 -
Difference Work in Process Inventory Changes: Absorption Costing (Decrease) (31,000 - 15,500) Direct Costing (Decrease) (29,000 - 14,500) Difference in inventory
15,500 14,500 1,000
Dec Dec Dec
(11,500) (10,500) (1,000)
Inc Inc Inc
Finished Goods inventory changes: Absorption Costing (Increase) Direct Costing (Increase)
(23,000 - 34,500) (21,000 - 31,500)
Dec Inc
1,000 (1,000) -
22-7 COGS (absorption) COGS (Direct)
1,308,700 1,180,000
REQUIRED NO:1 Equivalent Production Unit: Units completed and transferred out Less: Units in process (at start) - all units
Material 110,000 (10,000)
Conversion 110,000 (10,000)
Units started and completed during the period
100,000
100,000
Add: Units in process (at start) - work this period Add: Units in process (at end) - work this period EQUIVALENT PRODUCTION UNIT
15,000 115,000
6,000 (10000 x 3/5) 5,000 (15000 x 1/3) 111,000
REQUIRED NO: 2 Nos. of units sold: Finished goods (at start) Add: Units completed during the year Total Finished goods available for sale Less: Finished goods (at end) Nos. of units sold
Units 20,000 110,000 130,000 (12,000) 118,000
REQUIRED NO: 3 Direct Material (2 lbs x 1.50) Direct Labor Variable FOH Fixed FOH TOTAL STANDARD PER UNIT COST
Direct Costing Absorption 3.00 3.00 6.00 6.00 1.00 1.00 1.10 10.00 11.10
REQUIRED NO. 4: OVER / UNDER applied Fixed FOH Actual Fixed FOH Applied Fixed FOH (111,000 units x 1.10) OVER APPLIED FIXED FOH
121,000 122,100 1,100
Cost of Goods Sold - ABSORPTION Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead MANUFACTURING COST Add: Work in process (at start) Direct material (10,000 units x 100% x 3) Conversion (10,000 units x 2/5 x 8.10)
(115,000 units x Rs. 3) (111,000 units x Rs. 6) (111,000 units x Rs. 1) (111,000 units x Rs. 1.10)
30,000 32,400
62,400
Total Work in process Less: Work in process (at end) Direct material (15,000 units x 100% x 3) Conversion (15,000 units x 1/3 x 8.10) COST OF GOODS MANUFACTURED Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end)
345,000 666,000 111,000 122,100 1,244,100
1,306,500
45,000 40,500
(85,500) 1,221,000
(20,000 units x 11.10) (12,000 units x 11.10)
COST OF GOODS SOLD Adjustment of (over) / under applied Fixed Factory overhead COST OF GOODS SOLD (Actual)
222,000 1,443,000 (133,200) 1,309,800
(W-3)
(1,100) 1,308,700
DIRECT Cost of Goods Sold (Variable) Direct Material Direct Labor Variable Factory overhead
(115,000 units x Rs. 3) (111,000 units x Rs. 6) (111,000 units x Rs. 1)
Variable Manufacturing Cost Add: Work in process (at start) Direct material (10,000 units x 100% x 3) Conversion (10,000 units x 2/5 x 7)
1,122,000
30,000 28,000
Total Work in process Less: Work in process (at end) Direct material (15,000 units x 100% x 3) Conversion (15,000 units x 1/3 x 7) COST OF GOODS MANUFACTURED (VARIABLE)
Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
345,000 666,000 111,000
58,000 1,180,000
45,000 35,000
(20,000 units x 10) (12,000 units x 10
(80,000) 1,100,000
200,000 1,300,000 (120,000)
COST OF GOODS SOLD (Variable)
1,180,000
INCOME STATEMENT: ABSORPTION COSTING: Sales (118,000 units x Rs. 20) Less: Cost of Goods sold: Gross Profit Less: Operating expenses NET INCOME (Absorption Costing)
2,360,000 (1,308,700) 1,051,300 1,051,300
Direct Costing Sales (118,000 units x Rs. 20) Less: Variable cost of goods sold GROSS CONTRIBUTION MARGIN / NET C.M
2,360,000 (1,180,000) 1,180,000
Less: Fixed factory overhead NET INCOME (Direct Costing)
RECONCILATION STATEMENT: Work in process: (at start) (10,000 units x 2/5 x 1.1) (at end) (15,000 units x 1/3 x 1.1) Increase in amount Finished goods: (at start) (20,000 units x 100% x 1.1) (at end) (12,000 units x 100% x 1.1) Decrease in amount
Work in process: (at start) (10,000 units x 2/5) (at end) (15,000 units x 1/3)
7,700
(121,000) 1,059,000
4,400 5,500 1,100 Increase
22,000 13,200 8,800 Decrease 7,700
4,000 5,000 Increase in units
Finished goods: (at start) (20,000 units x 100%) (at end) (12,000 units x 100%)
1,000
20,000 12,000 Decrease in units
8,000 Net Decrease Fixed FOH rate
7,000 1.10 7,700
xxxxx xxx xxx xxx xxx xxxxx xxx xxxxx (xxx) xxxx
xxx/(xx) (xxxxx) xxxx (xxx) xxxx
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold (Variable): Direct Material Direct Labor Variable Factory overhead Variable Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
xxxxx xxx xxx xxx xxxxx xxx xxxxx (xxx)
COST OF GOODS SOLD (Variable)
(xxxx)
GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses
(xxx)
CONTRIBUTION MARGIN
xxxx
Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME
xxxx
xxx xxx
(xxx) xxxxxx
3rd. Quarter FG (at start) Add: Produciton (100,000 x 80%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)
40,000 80,000 120,000 (80,000) 40,000
4th Quarter" FG (at start) Add: Produciton (100,000 x 50%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)
40,000 50,000 90,000 (80,000) 10,000
1st Quarter: FG (at start) Add: Produciton (100,000 x 110%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)
10,000 110,000 120,000 (80,000) 40,000
2*2 Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead
(7,500 units x $ 80)
600,000
(9,000 units x $ 30) (9,000 units x $ 19) (9,000 units x $ 6) (9,000 units x $ 5)
270,000 171,000 54,000 45,000
Manufacturing Cost / Cost of Goods Manufactured Add: Finished goods (at start) (2,000 units x $60) Total Finished goods available for Sale Less: Finished goods (at end) (3,500 units x $ 60)
540,000 120,000 660,000 (210,000)
COST OF GOODS SOLD
450,000
Adjustment of Fixed (over) / under applied Factory overhead
(1,000 units x $5) ($50,0000 - $ 45,000)
5,000
COST OF GOODS SOLD (Actual)
(455,000)
Gross Profit Less: Marketing and administrative Expenses Variable marketing and admin. Expenses (7,500 units x $4) Fixed marketing and admin. Expenses (10,000 units x $2.80) OPERATING INCOME
Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 540,000 / 9,000 units = Rs. 60 OR (30+ 19 + 6 + 5)
145,000 30,000 28,000
(58,000) 87,000
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold (Variable): Direct Material Direct Labor Variable Factory overhead
(7500 units x Rs. 80) (9000 units x Rs. 30) (9000 units x Rs. 19) (9000 units x Rs. 6)
Variable Cost of Goods Manufactured Add: Finished goods (at start) (2000 units x 55) Total Finished goods available at variable cost Less: Finished goods (at end) (3500 units x 55)
600,000 270,000 171,000 54,000 495,000 110,000 605,000 (192,500)
COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses
(412,500) 187,500 (7500 units x 4)
(30,000)
CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead (10,000 units x 5) Fixed Marketing and Adminstrative expenses (10,000 units x 2.80) OPERATING INCOME
157,500
50,000 28,000
(78,000) 79,500
Required no. 3: Reconcilation Statement of Operating Income: Method # 1: Operating Income: Absorption Costing Direct Costing Difference Inventory Changes: Absorption Costing (Increase) (210,000 - 120,000) Direct Costing (Increase) (192,500 - 110,000) Difference in inventory Method #2: Diffence in Inventory in units Ending Inventory (in units) 3,500 Opening Inventory (in units) 2,000 Difference in units (Decrease in FG) Fixed FOH rate
Net income - Absorption costing Net income - Direct costing Method # 3: Net income - Absorption costing Less: Increase in FG, increase in unit cost by 5 (1500 units x Rs 5) Net income - Direct Costing
1,500 5 7,500 87,000 79,500 7,500 87,000 (7,500) 79,500
87,000 79,500 7,500 90,000 82,500 7,500
Units Units Units
2*3 Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Fixed manufacturing cost Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end)
(30,000 units x Rs. 15) (24,000 units x 5) (24,000 units x 6)
(10,000 units x 11) (4,000 units x 11)
COST OF GOODS SOLD Adjustment of Fixed (over) / under applied Factory overhead
120,000 144,000 264,000 110,000 374,000 (44,000) 330,000
(6,000 units x 6)
COST OF GOODS SOLD (Actual) Gross Profit Less: Marketing and administrative Expenses OPERATING INCOME
Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 264,000 / 24,000 units = Rs. 11
36,000
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Variable Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
(30,000 units x Rs. 15) (24,000 units x 5)
(10,000 units x 5) (4,000 units x 5)
120,000 120,000 50,000 170,000 (20,000)
COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses
(7,500 units x 4)
CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME
180,000 25,000
Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing Difference Inventory Changes: Absorption Costing (Increase) Direct Costing (Increase) Difference in inventory Diffence in Inventory in units Ending Inventory (in units) Opening Inventory (in units) Difference in units Fixed FOH rate
450,000
(366,000) 84,000 (27,000) 57,000
450,000
(150,000) 300,000 (2,000) 298,000
(205,000) 93,000
w*2000 Format of Income statement under Absorption costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Fixed manufacturing cost Cost of Goods Manufactured Total Finished goods available Less: Finished goods (at end)
(19,000 units x Rs. 67)
1,273,000
(20,000 units x 42.50) (20,000 units x 10.50)
850,000 210,000 1,060,000 1,060,000 (53,000)
(1,000 units x 53)
COST OF GOODS SOLD
(1,007,000)
Gross Profit Less: Marketing and administrative Expenses Fixed marketing and admin expenses Variable marketing and admin expenses
266,000 150,000 114,000
OPERATING INCOME
(264,000)
2,000
Format of Income statement under Direct costing Sales Less: Cost of Goods Sold: Variable manufacturing cost Variable Cost of Goods Manufactured Total Finished goods available at variable cost Less: Finished goods (at end)
(19,000 units x Rs. 67)
1,273,000
(20,000 units x 42.50)
850,000
(1,000 units x 42.5)
850,000 850,000 (42,500)
COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses Overtime premium - Admin Expenses
(807,500) 465,500 (19,000 units x Rs 5)
95,000 19,000
(114,000)
CONTRIBUTION MARGIN (NET) Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME
351,500
210,000 150,000 Net Loss
(360,000) (8,500)
W-1:
Calculation of variable cost per unit: 1. Direct material used: Raw material (at start) Add: Purchases during the year Raw material available for use Less: Raw material (at end)
80,000 460,000 540,000 (40,000)
Direct material used
500,000
2. Direct labour used: Total factory wages Less: Overtime premium - Management Exp
359,000 (19,000)
Direct labour used 3. Factory overhead: Outstanding FOH (at end) Add: Payment made Less: Outstanding FOH (at start) Factory overhead used Less: Fixed Standing charges
340,000
6,000 18,000 24,000 (4,000) 20,000 (10,000) 10,000
Total Manufacturing Cost / COGM Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 850,000 / 20,000 units = Rs. 42.50
850,000
W-1
Fixed Cost: Fixed manufacturing Expenses: a) Water & Electric - Standing charges b) Factory Depreciation c) Lease rental payment - Factory Fixed Manufacturing Cost
(140,000 - 20,000)
Fixed Admin and Marketing Expenses: a) Advertisement cost b) Salaries Expenses Fixed Admin and Marketing Expenses
Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing Difference Inventory Changes: Absorption Costing (Increase) Direct Costing (Increase) Difference in inventory Diffence in Inventory in units Ending Inventory (in units) Opening Inventory (in units) Difference in units Fixed FOH rate
10,000 80,000 120,000 210,000
30,000 120,000 150,000
22-5 Working: Equivalent Production Unit: Units completed and transferred out Less: Units in process (at start) - all units
Material 66,000 (2,000)
Conversion 66,000 (2,000)
Units started and completed during the period
64,000
64,000
Add: Units in process (at start) - work this period
-
Add: Units in process (at end) - work this period EQUIVALENT PRODUCTION UNIT
1,000 65,000
1,000 500 65,500
ABSORPTION
Cost of Goods Sold: Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead MANUFACTURING COST
(65,000 units x Rs. 8) (65,500 units x Rs. 9) (65,500 units x Rs. 4) (65,500 units x Rs 2)
Add: Work in process (at start) Direct material (2000 units x 100% x 8) Conversion (2000 units x 50% x 15) Total Work in process
16,000 15,000
Less: Work in process (at end) Direct material (1000 units x 100% x 8) Conversion (1000 units x 50% x 15)
8,000 7,500
COST OF GOODS MANUFACTURED Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end) COST OF GOODS SOLD Adjustment of (over) / under applied Factory overhead COST OF GOODS SOLD (Actual)
(260,000 x $2)
520,000 589,500 262,000 131,000 1,502,500
31,000 1,533,500
(15,500) 1,518,000
(1000 units x 23) (1500 units x 23)
23,000 1,541,000 (34,500) 1,506,500
5,700 1,512,200
W-1
Adjustment of Under applied FOH Actual FOH Applied FOH
398,700 393,000
UNDER APPLIED FOH
OR
5,700
Fixed FOH Applied FOH Actual FOH
131,000 135,000 Difference
4,000
Variable FOH Applied FOH Actual FOH
262,000 263,700 Difference
1,700 5,700
Format of Income statement under Direct costing DIRECT Cost of Goods Sold (Variable) Direct Material Direct Labor Variable Factory overhead
(65,000 units x Rs. 8) (65,500 units x Rs. 9) (65,500 units x Rs. 4)
Variable Manufacturing Cost
1,371,500
Add: Work in process (at start) Direct material (2000 units x 100% x 8) Conversion (2000 units x 50% x 13)
16,000 13,000
Total Work in process
29,000 1,400,500
Less: Work in process (at end) Direct material (1000 units x 100% x 8) Conversion (1000 units x 50% x 13)
8,000 6,500
COST OF GOODS MANUFACTURED (VARIABLE)
Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
520,000 589,500 262,000
(14,500) 1,386,000
(1000 units x 21) (1500 units x 21)
COST OF GOODS SOLD (Variable) Add: Adjustment of variable FOH cost / Controllable variance / Variable Variance Applied FOH 262,000 Actual FOH 263,700 Difference COST OF GOODS SOLD (Variable)
21,000 1,407,000 (31,500) 1,375,500
1,700 1,377,200
Absorption Sales Less: COGS
1,600,000 (1,512,200)
Gross profit / Net income
87,800
Direct Sales Less: COGS (Variable) Gross C.M / Net C.M.
1,600,000 (1,377,200) 222,800
Less: Fixed cost
(135,000) 87,800
Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing
87,800 87,800 -
Difference Work in Process Inventory Changes: Absorption Costing (Decrease) (31,000 - 15,500) Direct Costing (Decrease) (29,000 - 14,500) Difference in inventory
15,500 14,500 1,000
Dec Dec Dec
(11,500) (10,500) (1,000)
Inc Inc Inc
Finished Goods inventory changes: Absorption Costing (Increase) Direct Costing (Increase)
(23,000 - 34,500) (21,000 - 31,500)
Dec Inc
1,000 (1,000) -
22-7 COGS (absorption) COGS (Direct)
1,308,700 1,180,000
REQUIRED NO:1 Equivalent Production Unit: Units completed and transferred out Less: Units in process (at start) - all units
Material 110,000 (10,000)
Conversion 110,000 (10,000)
Units started and completed during the period
100,000
100,000
Add: Units in process (at start) - work this period Add: Units in process (at end) - work this period EQUIVALENT PRODUCTION UNIT
15,000 115,000
6,000 (10000 x 3/5) 5,000 (15000 x 1/3) 111,000
REQUIRED NO: 2 Nos. of units sold: Finished goods (at start) Add: Units completed during the year Total Finished goods available for sale Less: Finished goods (at end) Nos. of units sold
Units 20,000 110,000 130,000 (12,000) 118,000
REQUIRED NO: 3 Direct Material (2 lbs x 1.50) Direct Labor Variable FOH Fixed FOH TOTAL STANDARD PER UNIT COST
Direct Costing Absorption 3.00 3.00 6.00 6.00 1.00 1.00 1.10 10.00 11.10
REQUIRED NO. 4: OVER / UNDER applied Fixed FOH Actual Fixed FOH Applied Fixed FOH (111,000 units x 1.10) OVER APPLIED FIXED FOH
121,000 122,100 1,100
Cost of Goods Sold - ABSORPTION Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead MANUFACTURING COST Add: Work in process (at start) Direct material (10,000 units x 100% x 3) Conversion (10,000 units x 2/5 x 8.10)
(115,000 units x Rs. 3) (111,000 units x Rs. 6) (111,000 units x Rs. 1) (111,000 units x Rs. 1.10)
30,000 32,400
62,400
Total Work in process Less: Work in process (at end) Direct material (15,000 units x 100% x 3) Conversion (15,000 units x 1/3 x 8.10) COST OF GOODS MANUFACTURED Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end)
345,000 666,000 111,000 122,100 1,244,100
1,306,500
45,000 40,500
(85,500) 1,221,000
(20,000 units x 11.10) (12,000 units x 11.10)
COST OF GOODS SOLD Adjustment of (over) / under applied Fixed Factory overhead COST OF GOODS SOLD (Actual)
222,000 1,443,000 (133,200) 1,309,800
(W-3)
(1,100) 1,308,700
DIRECT Cost of Goods Sold (Variable) Direct Material Direct Labor Variable Factory overhead
(115,000 units x Rs. 3) (111,000 units x Rs. 6) (111,000 units x Rs. 1)
Variable Manufacturing Cost Add: Work in process (at start) Direct material (10,000 units x 100% x 3) Conversion (10,000 units x 2/5 x 7)
1,122,000
30,000 28,000
Total Work in process Less: Work in process (at end) Direct material (15,000 units x 100% x 3) Conversion (15,000 units x 1/3 x 7) COST OF GOODS MANUFACTURED (VARIABLE)
Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end)
345,000 666,000 111,000
58,000 1,180,000
45,000 35,000
(20,000 units x 10) (12,000 units x 10
(80,000) 1,100,000
200,000 1,300,000 (120,000)
COST OF GOODS SOLD (Variable)
1,180,000
INCOME STATEMENT: ABSORPTION COSTING: Sales (118,000 units x Rs. 20) Less: Cost of Goods sold: Gross Profit Less: Operating expenses NET INCOME (Absorption Costing)
2,360,000 (1,308,700) 1,051,300 1,051,300
Direct Costing Sales (118,000 units x Rs. 20) Less: Variable cost of goods sold GROSS CONTRIBUTION MARGIN / NET C.M
2,360,000 (1,180,000) 1,180,000
Less: Fixed factory overhead NET INCOME (Direct Costing)
RECONCILATION STATEMENT: Work in process: (at start) (10,000 units x 2/5 x 1.1) (at end) (15,000 units x 1/3 x 1.1) Increase in amount Finished goods: (at start) (20,000 units x 100% x 1.1) (at end) (12,000 units x 100% x 1.1) Decrease in amount
Work in process: (at start) (10,000 units x 2/5) (at end) (15,000 units x 1/3)
7,700
(121,000) 1,059,000
4,400 5,500 1,100 Increase
22,000 13,200 8,800 Decrease 7,700
4,000 5,000 Increase in units
Finished goods: (at start) (20,000 units x 100%) (at end) (12,000 units x 100%)
1,000
20,000 12,000 Decrease in units
8,000 Net Decrease Fixed FOH rate
7,000 1.10 7,700
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