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Absorption Costing

Salea
Less: Cost Of Goods Sold

Direct Material
Direct Labor
Variable FOH
Fixed FOH

Cost Of Goods Manufactuered


Add:Finished Goods Opening
Total Finished Goods Available
Less:Finished Goods Ending
Cost Of Goods Sold

Adjustment of Fixed (over)/ under


applied Factory overhear
Gross Profit Cost Of Goods Sold (Actual)
Less:Marketing and administrative Expenses

Variable marketing and admin. Expenses


Fixed marketing and admin. Expenses

Net Income / Profit

Direct Costing

Salea
Less:Variable Cost Of Goods Sold

Direct Material
Direct Labor
Variable FOH

Variable Cost Of Goods Manufactuered


Add:Finished Goods Opening
Total Finished Goods Available at variable cost
Less:Finished Goods Ending
Variable Cost Of Goods Sold

GROSS CONTRIBUTION MARGIN


Less:Variable Marketing and administrative Expenses

CONTRIBUTION MARGIN
Less:Fixed Expenses:
Fixed Factory overhead
Fixed Marketing and administrative Expenses

OPERATING INCOME
SUMMER - 2007 or Ex -8 (MU)

Required#1

Total Fixed Manufacturing cost 200,000

Budgeted Units 20,000

Fixed Manufacturing Cost absorption rate


(Rs.200,000/20,000 units) 10 per unit

Amount of Fixed Manufacturing cost applied


(12,000 units x Rs. 10) 120,000

Format of Income statement under Absorption costing

Sales (6,000 units x 80) 480,000


Less: Cost of Goods Sold:
Variable manufacturing cost (12,000 units x 30) 360,000
Fixed Factory overhead (12,000 units x 10) 120,000

Cost of Goods Manufactured 480,000


Less: Finished goods (at end) (6,000 units x 40) (240,000)

COST OF GOODS SOLD 240,000 (240,000)

Gross Profit 240,000


Less: Marketing and administrative
Fixed Marketing and Admin
Operating Income

Format of Income statement under Direct costing


Sales xxxxx
Less: Cost of Goods Sold (Variable):
Direct Material xxx
Direct Labor xxx
Variable Factory overhead xxx

Variable Cost of Goods Manufacturedxxxxx


Add: Finished goods (at start) xxx
Total Finished goods available at variable
xxxxxcost
Less: Finished goods (at end) (xxx)

COST OF GOODS SOLD (Variable) (xxxx)

GROSS CONTRIBUTION MARGIN xxxx


Less: Variable Marketing and administrative
Expenses (xxx)

CONTRIBUTION MARGIN xxxx

Less: Fixed Expenses:


Fixed Factory overhead xxx
Fixed Marketing and Adminstrative expenses
xxx (xxx)
OPERATING INCOME xxxxxx
Required# 2
Absorption Costing Method

Salea 480,000
Less: Cost Of Goods Sold

Variable manufacturing cost


(12000 units * Rs.30) (W-1) 360,000
Fixed manufacturing cost 120,000
Cost of Production 480,000
Less:Closing Stock Rs.(480000/12000)*6000 240,000
Cost Of Goods Sold 240,000
Gross Profit 240,000
Less:Marketing and administrative Expenses

Variable marketing and admin. Expenses 6000units*Rs.20


(W-2) 120,000
Fixed marketing and admin. Expenses Rs.160000*0.5) 80,000 200,000

Net Income / Profit 40,000

Required# 2
Direct Costing Method

Salea 480,000
Less:Variable Cost Of Goods Sold

Variable manufacturing cost


(12000 units * Rs.30) (W-1) 360,000
Less:Closing Stock 180,000 180,000
Rs(360000/12000)*6000

Gross Contribution 300,000

Less:Variable Marketing and administrative Expenses

Variable marketing and admin. Expenses 6000units*Rs.20


(W-2) 120,000

Net Contribution Margin 180,000

Less: Fixed Cost


Manufacturing (Req.1) 120,000
Marketing Rs.160000/2 80,000 200,000

Loss (20,000)
Required# 3

RECONCILIATION
Absorption costind Marginal costing Difference

Profit/(loss) 40,000 (20,000) 60,000


Value of stock 240,000 180,000 60,000

Working# 1

Budgeted variable manufacturing cost 600,000


Budgeted units 20,000
variable cost per unit
(Rs.600000/20000) 30

Working# 2

Variable Budgeted Marketing and other Expenses 400,000


Budgeted units 20,000
variable cost per unit 20
Format of Income statement under Absorption costing

Sales (8,000 units x Rs. 4,000)


Less: Cost of Goods Sold:
Drect material (10,000 units x 880) 8,800,000
Direct Labor (10,000 units x 480) 4,800,000
Variable Factory overhead (10,000 units x 240) 2,400,000
Fixed manufacturing cost (10,000 units x 960) 9,600,000

Cost of Goods Manufactured 25,600,000


Add: Finished goods (at start) -
Total Finished goods available 25,600,000
Less: Finished goods (at end) (2,000 units x 2560) (5,120,000)

COST OF GOODS SOLD

Gross Profit
Less: Marketing and administrative Expenses
Fixed marketing and admin expenses 5,600,000
Variable marketing and admin expenses (8,000 units x 400) 3,200,000

OPERATING INCOME

Format of Income statement under Direct costing

Sales (8,000 units x Rs. 4,000)


Less: Cost of Goods Sold (Variable)
Drect material (10,000 units x 880) 8,800,000
Direct Labor (10,000 units x 480) 4,800,000
Variable Factory overhead (10,000 units x 240) 2,400,000
Variable Cost of Goods Manufactured 16,000,000
Add: Finished goods (at start) -
Total Finished goods available at variable cost 16,000,000
Less: Finished goods (at end) (2,000 units x 1600) (3,200,000)

COST OF GOODS SOLD (Variable)


GROSS CONTRIBUTION MARGIN
Less: Variable Marketing and administrative
Expenses (8,000 units x 400) 3,200,000

CONTRIBUTION MARGIN (NET)

Less: Fixed Expenses:


Fixed Factory overhead 9,600,000
Fixed Marketing and Adminstrative expenses 5,600,000
OPERATING INCOME Net Profit

Required no. 3: Reconcilation Statement of Operating Income:

Operating Income:
Absorption Costing 2,720,000
Direct Costing 800,000
Difference 1,920,000

Diffence in Inventory in units


Ending Inventory (in units) 2,000
Opening Inventory (in units) -

Difference in units 2,000


Fixed FOH rate 960
1,920,000
g

32,000,000

(20,480,000)

11,520,000

(8,800,000)

2,720,000

32,000,000

(12,800,000)
19,200,000

(3,200,000)
16,000,000

(15,200,000)
800,000
WINTER 2006

Required # 1

Absorption Costing
Year 1 Year 2

Salea 32000000 32000000


Less: Cost Of Goods Sold
Direct Material 8800000 5280000
Direct Labor 4800000 2880000
Variable FOH 2400000 1440000
Fixed FOH 9600000 9600000

Cost Of Goods Manufactuered 25600000 19200000


Add:Finished Goods Opening 0 5120000
Total Finished Goods Available 25600000 24320000
Less:Finished Goods Ending 5120000 0
Cost Of Goods Sold 20480000 24320000

Gross Profit 11520000 7680000


Less:Marketing and administrative Expenses
Variable marketing and admin. Expenses 3200000 3200000
Fixed marketing and admin. Expenses 5600000 8800000 5600000 8800000

Net Income / Profit 2720000 -1120000


Required # 2

Direct Costing
Year 1 Year 2
Salea 32000000 32000000
Less:Variable Cost Of Goods Sold
Direct Material 8800000 5280000
Direct Labor 4800000 2880000
Variable FOH 2400000 1440000

Variable Cost Of Goods Manufactuered 16000000 9600000


Add:Finished Goods Opening 0 3200000
Total Finished Goods Available at variable cost 16000000 12800000
Less:Finished Goods Ending 3200000 0
Variable Cost Of Goods Sold 12800000 12800000
GROSS CONTRIBUTION MARGIN 19200000 19200000
Less:Variable Mrkt. & Admin Expenses 3200000 3200000

CONTRIBUTION MARGIN 16000000 16000000


Less:Fixed Expenses:
Fixed Factory overhead 9600000 9600000
Fixed Markt. & Admin Expenses 5600000 15200000 5600000 15200000

OPERATING INCOME 800000 800000


sumer2006

Required# 1
Absorption Costing Method

Salea 4500000
Less: Cost Of Goods Sold
Opening Stock 1100000
Add:Variable manufacturing cost
(24000 units * Rs.50) 1200000
Fixed manufacturing cost 1440000
Cost of Production 3740000
Less:Closing Stock (Rs.4000*110) 440000
Cost Of Goods Sold 3300000
Adjustment of Fixed (over)/ under
applied Factory overhear 360000
Actual Cost of Goods Sold 3660000 1440000
1800000
Gross Profit 840000 360000
Less:Marketing and administrative Expenses

Fixed marketing and admin. Expenses 270000

Net Income / Profit 570000


Required# 2
Direct Costing Method

Salea 4500000
Less:Variable Cost Of Goods Sold

Opening Stock (10000 units @ 50) 500000

Variable manufacturing cost


(24000 units @50) 1200000
Total varible COGM 1700000
Less:Closing Stock
(4000 units @ 50) 200000
Variable Cost Of Goods Sold 1500000
Gross Contribution 3000000

Less:Variable Marketing and administrative Expenses

Variable marketing and admin. Expenses 20000

Net Contribution Margin 2980000

Less: Fixed Cost


Manufacturing 1800000
Marketing 250000 2050000

Profit 930000

Required# 3

Absorption Direct Diffrence


Change in Profit 570000 930000 360000

Opening Stock 1100000 500000 600000


Closing Stock 440000 200000 240000 360000
SUMMER - 2005

Required # 1
Faricon Corporation
Absorption Costing

Sales (20000 units @ 150 ) 3000000


Less: Cost Of Goods Sold
Variable COGS 1500000
Fixed COGD (w-1) 300000
add: Variances(w - 2) 110000 1910000
Gross Profit 1090000
Less: Mrkt.& admin Exp. 500000

Net Profit 590000

Faricon Corporation
Direct Costing

Sales (20000 units @ 150 ) 3000000


Less:Variable Cost Of Goods Sold 1500000
Add:Variable Variance 20000 1520000
Contribution Margin 1480000
Less:Fixed Expenese
fixed FOH 450000
Mrkt.& Admin 500000 950000
Net Profit 530000

W-1

Plant Capacity 30000 units


Budgeted FOH 450000
Per Unit FOH 15

W-2

Total unfavorable variable variance 20000


Fixed FOH Variance
(budgeted prod.-actual prod.)*FOH Rate
(30000-24000)*15 90000
Total Variance 110000
SUMMER 2003

MOON COMPANY

Required # 1

Absorption Costing Methode

Sales (750 units @ 800) 600000


Less: Cost of Goods Sold
Direct Materal 225000
Direct Labour 142500
Factory Overhead
Variable 45000
Fixed 37500
Under-absorbed FOH 5000 455000
Gross Profit 145000
Less: Mrkt. & Admin Expenses
Variable 30000
Fixed 28000 58000

Net Profit 87000

Required # 2

Direct Costing Methode

Sales (750 units @ 800) 600000


Less: Cost of Goods Sold
Direct Materal 225000
Direct Labour 142500
Variable FOH 45000
Cost of Varible Goods Sold 412500
Gross Contribution margin 187500
Less:Variable Mrkt. & Admin Expenses 30000
Contribution Margin 157500
Less:Fixed Expenses
Fixed FOH 50000
Fixed Mrkt.&Admin 28000 78000
Net Profit 79500

Required # 3

RECONCILIATON
Absorption Direct Difference
Net Income 87000 79500 7500
Opening Ending
Inventories 200 350 150
Fixed Cost @50
(150*50) 7500

working # 1
Budgeted FOH 50000
Actual FOH 45000
Under-absorbed FOH 5000
SUMMER 2002
Modern Metal Works

Required # 1(a)
Absorption Costing Method Six Months Ending Six Months Ending
31st March,2002 30th September,2002

4900000 5600000

Sales Opening Stock 0 517500


Less:Cost of
Add:COGM
Goods Sold 2932500 2415000
Total Goods availabe 2932500 2932500
Less:Closing Stock 517500 172500
Cost of Goods Sold 2415000 2760000
(over)under absorbed
Factory Overhead -50000 2365000 100000 2860000
2535000 2740000

Gross ProfitVariable(20%of Sales) 980000 1120000


Less:Expenses
Fixed(900000/2) 450000 1430000 450000 1570000
Net Profit 1105000 1170000

Required # 1(b)
Direct Costing Method Six Months Ending Six Months Ending
31st March,2002 30th September,2002

4900000 5600000

Sales Opening Stock 0 367500


Less:variable
Add:COGM
Cost of Goods Sold 2082500 1715000
Total Goods availabe 2082500 2082500
Less:Closing Stock 367500 1715000 122500 1960000
Gross Contribution Margin 3185000 3640000
980000 1120000

Less: Variable
Contribution
ExpensesMargin 2205000 2520000

Fixed FOH 800000 800000


Less Fixed Fixed
Expenses
Selling 450000 1250000 450000 1250000
Net Profit 955000 1270000

Required # 3
Absorption Direct Difference
RECONCILIATON
First 6 Months 1105000 955000 150000
Sec. 6 Months 1170000 1270000 -100000
Net Income
Net Income

working # 1:

Budgeted FOH units 8000 8000


Actual FOH units 8500 7000
(over)under absorbed
Overhead in units -500 1000
"X" by @100 -50000 100000
SUMMER 2002

Tajir Co. Ltd


Absorption Costing
Salea 6400000
(150000 units @ 40 +400000Fav. variance)
Less: Cost Of Goods Sold

Direct Material 1740000 (220000 units @ 8-20000 fav. Variance


Direct Labor 2050000 (220000 units @ 10-150000 fav. Variance
Variable FOH 800000 (220000 units @ 4-80000 fav. Variance
Fixed FOH 680000 (220000 units @ 3+20000 fav. Variance

Cost Of Goods Manufactuered 5270000


Add:Finished Goods Opening 0 5035
Total Finished Goods Available 5270000
Less:Finished Goods Ending 175000
Cost Of Goods Sold 5095000
Gross Profit 1305000
Less:Marketing and administrative Expenses
Variable mrkt. and admin. Exp. 960000
Fixed mrkt. and admin. Exp. 1080000 2040000

Net Income / Profit -735000

Direct Costing

Salea
Less:Variable Cost Of Goods Sold

Direct Material
Direct Labor
Variable FOH

Variable Cost Of Goods Manufactuered


Add:Finished Goods Opening
Total Finished Goods Available at variable cost
Less:Finished Goods Ending
Variable Cost Of Goods Sold

GROSS CONTRIBUTION MARGIN


Less:Variable Marketing and administrative Expenses

CONTRIBUTION MARGIN
Less:Fixed Expenses:
Fixed Factory overhead
Fixed Marketing and administrative Expenses

OPERATING INCOME
WINTER - 1998

Solo Limited

Marginal Costing Method


Period 1 Period 2 Period 3 Period 4

Sales 27500 22000 30250 24750


Less:Variable COGS 15000 15000 13500 15000
Add:Opening F.G 0 0 3000 0
Less:Closing F.G 0 15000 -3000 12000 0 16500 -1500 13500
Contribution Margin 12500 10000 13750 11250
Less:Fixed Cost 6000 6000 6000 6000
Net Profit 6500 4000 7750 5250

Absorption Costing Method


Period 1 Period 2 Period 3 Period 4
Sales 27500 22000 30250 24750
Less:Cost of Good Sold 21000 21000 18900 21000
Add:Opening stock 0 0 4200 0
Less:Closing stock 0 -4200 0 -2100
over(under)obsorption FOH 0 21000 0 16800 600 23700 0 18900
Net Profit 6500 5200 6550 5850

working # 1

Variable cost per unit 30


Fixed cost per unit (6000/500) 12
Total cost per unit 42

working # 2
Budgeted Fixed FOH (500*12) 6000
Actual Fixed FOH (450*12) 5400
Under absorption FOH 600
May-92

Absorption Costing Method

January February
Sales 80000 120000
Less:Cost of Goods Sold
Direct Mfg. cost 80000 20000
Fixed FOH 24000 6000
COGM 104000 26000
Add:Opening stock 0 52000
Total COGM available 104000 78000
Less:Closing stock 52000 52000 0
Add:under absorb FOH 18000 96000

Gross Profit 28000 24000


Less: Selling & Admin. Expenses 8000 8000
Net Profit 20000 16000

Marginal Costing Method

January February
Sales 80000 120000
Less: variable COGS
Direct Mfg. cost 80000 20000
Add:opening stock 0 40000
Less:closing stock -40000 40000 0 60000
Contribution Margin 40000 60000
Less:Fixed Expenses
Fixed FOH 24000 24000
Selling & Admin. 8000 32000 8000 32000
Net Profit 8000 28000