Capacity

Master budget capacity

SP/unit
DM cost
DL cost
Var manuf OH
Var. non manuf
Fixedd Manufacturing overhead cost
Fixed non manuf exp

150000
140000
500
150
50
40
30
14000000
800000

100

1.Product cost per unit & profit is calculated using Absorption and variation costing
YEAR
Production
Sales
YEAR
Selling price/Unit
Product cost
Invenotry change
Closing inventory
COGS
FIXED Manufacturing Cost
Non Manufacturing overhead
Total cost
Sales
Profit

2010
Absorption Variation
140000
140000
2010
500
500
340
240
0
0
0
0
47600000 33600000
0
14000000
5000000
5000000
52600000 52600000
70000000 70000000
17400000 17400000

2011
Absorption
140000
120000
2011
500
340
20000
6800000
40800000
0
4400000
45200000
60000000
14800000

a) Profits are different under different methods as

a)Profit are different as both methods use fixed manufacturing cost differently

Method
Absortption
Variable

Summary and reconcilation

201
17400000
17400000

2012
14800000
12800000

2013
2014
15600000 9622222.22
12800000 17400000

Reconcilation
Change in inventory
0
Variable costing income
17400000
Add: Fixed manufacturing overhead cost differed
inventory (absorption costing)
Deduct : fixed manufacturing cost released from inv.
Absorption costing net operating income
1740000

20000
12800000

30000
12800000

2000000

2800000

14800000

15600000

-50000
17400000

7777777.7
9622222

Absorption cost shows higher profits when inventory levels increased as production is more than sales.
In absorption cost costing fixed cost are less

F
F
F

2011
Variation
140000
120000
2011
500
240
20000
4800000
28800000
14000000
4400000
47200000
60000000
12800000

2012
Absorption
Variation
150000
120000
2012
500
333
240
50000
50000
16666667
12000000
40000000
28800000
14000000
4400000
4400000
44400000
47200000
60000000
60000000
15600000
12800000

2013
Absorption
Variation
90000
140000
2013
500
396
240
0
0
0
0
55377778
33600000
14000000
5000000
5000000
60377778
52600000
70000000
70000000
9622222
17400000

2010
Profit Cost Per Unit
Absorption
340
Profit Cost Per Unit
Variable
240
Profit as per Absorption
Absorption
Costing 17400000
Profit as per Variable
Variable
Costing 17400000

2011
340
240
14800000
12800000

2012

2013

333
396
240
240
15600000 9622222
12800000 17400000

Difference =

Year 2010
Year 2011
Year 2012
Year 2013

Production Vs Sales
Produced = Sold
Produced > Sold
Produced > Sold
Produced < Sold

Practical Capacity
Master Budget Capacity
Selling Price Per unit (Rs)
Production Costs - Variables Costs per unit :
Direct Material Cost (Rs)
Direct Labour Cost (Rs)
Variables Manufacturing Overheads (Rs)
Variables SGA Overheads per unit (Rs)
Fixed osts per annum :
Fixed Manufacturing Overheads (Rs)
Fixed SGA Overheads (Rs)

-2000000

Inventory
No change
Increase
Increase
Decrease

-2800000 7777778

Profit Effect
AC = VC
AC > VC
AC > VC
AC < VC
150000
140000
500
150
50
40
30
14000000
800000

Profit Difference
0
2000000
2800000
7777778

Profit Difference