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) COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses NET CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead xxxxx xxx xxx xxx xxxxx xxx xxxxx (xxx) (xxxx) xxxx (xxx) xxxx

xxx

Fixed Marketing and Adminstrative expenses OPERATING INCOME

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) 4th Quarter" FG (at start) Add: Produciton (100,000 x 50%) Total FG available Less: Sold units (100,000 x 80%) FG (at end) 1st Quarter: FG (at start) Add: Produciton (100,000 x 110%) Total FG available Less: Sold units (100,000 x 80%) FG (at end)

40,000 80,000 120,000 (80,000) 40,000 40,000 50,000 90,000 (80,000) 10,000 10,000 110,000 120,000 (80,000) 40,000

Sales Less: Cost of Goods Sold: Direct Material used Direct Labor used 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

Format of Income statement under Absorption costing (7,500 units x $80) ($ 30 x 9,000 units) ($19 x 9,000 units) ($6 x 9,000 units) ($5 x 9,000 units) (2,000 units x $60) (3,500 units x $60) 270,000 171,000 54,000 45,000 540,000 120,000 660,000 (210,000) 450,000 5,000

Adjustment of Fixed (over) / under ($50,000 - $45,000) applied Factory overhead (1,000 units x $5) COST OF GOODS SOLD (Actual) Gross Profit Less: Marketing and administrative Expenses Variable marketing and admin. Expenses ($4 x 7,500 units) Fixed marketing and admin. Expenses ($2.80 x 10,000 units) OPERATING INCOME

30,000 28,000

Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 540,000 / 9,000 units = Rs. 60 OR (30+ 19 + 6 + 5)

Format of Income statement under Direct costing Sales (7500 units x Rs. 80) Less: Cost of Goods Sold (Variable): Direct Material (9000 units x Rs. 30) 270,000 Direct Labor (9000 units x Rs. 19) 171,000 Variable Factory overhead (9000 units x Rs. 6) 54,000 Variable Cost of Goods Manufactured 495,000 Add: Finished goods (at start) (2000 units x 55) 110,000 Total Finished goods available at variable cost 605,000 Less: Finished goods (at end) (3500 units x 55) (192,500) COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses (7500 units x 4) NET CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead (10,000 units x 5) 50,000 Fixed Marketing and Adminstrative expenses (10,000 units x 2.80) 28,000 OPERATING INCOME

Required no. 3: Reconcilation Statement of Operating Income: Diffence in Inventory in units Ending Inventory (in units)

3,500

Opening Inventory (in units) Difference in units (Decrease in FG) Fixed FOH rate

2,000 1,500 5 7,500 87,000 79,500 7,500 87,000 (7,500) 79,500

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

600,000

(455,000) 145,000

(58,000) 87,000

600,000

(412,500) 187,500 (30,000) 157,500

(78,000) 79,500

Sales Less: Cost of Goods Sold: Variable manufacturing cost (30,000 x $5) Fixed Factory overhead ($6 x 30,000 units) Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end) (10,000 units x $ 11) COST OF GOODS SOLD Gross Profit Less: Marketing and administrative Expenses Fixed marketing and admin. Expenses 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)

Format of Income statement under Absorption costing (20,000 units x$15)

Sales Less: Variable cost of goods sold Variable manufacturing cost Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end)

Format of Income statement under Direct costing (20,000 units x$15) (30,000 x $5) Cost of Goods Manufactured (Variable) (10,000 units x $ 5) COST OF GOODS SOLD - Variable Contribution Margin

Less: Marketing and administrative Expenses Fixed Factory overhead Fixed marketing and admin. Expenses NET LOSS

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 1,500 5 7,500 87,000 79,500 7,500 87,000 (7,500) 79,500

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

sorption costing 300,000 150,000 180,000 330,000 330,000 (110,000) (220,000) 80,000 (25,000) 55,000

Direct costing 300,000 150,000 150,000 150,000 (50,000) (100,000) 200,000 180,000 25,000

Manufactured (Variable)

S SOLD - Variable

(205,000) (5,000)

55,000 #REF! #REF! 90,000 82,500 7,500

Units Units Units

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) COST OF GOODS SOLD Adjustment of Fixed (over) / under applied Factory overhead COST OF GOODS SOLD (Actual) Gross Profit Less: Marketing and administrative Expenses

Format of Income statement under Absorption costing (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)

(6,000 units x 6)

OPERATING INCOME

Per unit cost = Cost of Goods manfactured / Nos. of units produced = Rs. 264,000 / 24,000 units = Rs. 11

Sales Less: Cost of Goods Sold: Variable manufacturing cost (24,000 units x 5) Variable Cost of Goods Manufactured Add: Finished goods (at start) (10,000 units x 5) Total Finished goods available at variable cost Less: Finished goods (at end) (4,000 units x 5) COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME

Format of Income statement under Direct costing (30,000 units x Rs. 15)

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

costing 450,000 120,000 144,000 264,000 110,000 374,000 (44,000) 330,000 36,000 (366,000) 84,000 (27,000) 57,000

sting 450,000 120,000 120,000 50,000 170,000 (20,000) (150,000) 300,000 (2,000) 298,000 180,000 25,000

UTION MARGIN

(205,000) 93,000

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) COST OF GOODS SOLD Gross Profit Less: Marketing and administrative Expenses Fixed marketing and admin expenses Variable marketing and admin expenses (19,000 units x Rs. 67) (20,000 units x 42.50) (20,000 units x 10.50)

(1,000 units x 53)

OPERATING INCOME

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) COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Variable Marketing and administrative Expenses Overtime premium - Admin Expenses (19,000 units x Rs. 67) (20,000 units x 42.50)

(1,000 units x 42.5)

(19,000 units x Rs 5)

CONTRIBUTION MARGIN (NET) Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME

Net Loss

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) Direct material used 2. Direct labour used: Total factory wages Less: Overtime premium - Management Exp 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 359,000 (19,000)

80,000 460,000 540,000 (40,000)

6,000 18,000 24,000 (4,000) 20,000 (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 W-1 Fixed Cost: Fixed manufacturing Expenses:

a) Water & Electric - Standing charges b) Factory Depreciation c) Lease rental payment - Factory Fixed Manufacturing Cost Fixed Admin and Marketing Expenses: a) Advertisement cost b) Salaries Expenses Fixed Admin and Marketing Expenses

(140,000 - 20,000)

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

bsorption costing 1,273,000 850,000 210,000 1,060,000 1,060,000 (53,000) (1,007,000) 266,000 150,000 114,000

(264,000)

2,000

Direct costing 1,273,000 850,000 850,000 850,000 (42,500) (807,500) 465,500 95,000 19,000

(114,000)

351,500

210,000 150,000

(360,000) (8,500)

500,000

340,000

10,000 850,000

10,000 80,000 120,000 210,000

30,000 120,000 150,000

Working: Equivalent Production Unit: Material Units completed and transferred out Less: Units in process (at start) - all units Units started and completed during the period Add: Units in process (at start) - work this period Add: Units in process (at end) - work this period EQUIVALENT PRODUCTION UNIT ABSORPTION 66,000 (2,000) 64,000 1,000 65,000

Cost of Goods Sold:

Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead MANUFACTURING COST 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 Less: Work in process (at end) Direct material (1000 units x 100% x 8) Conversion (1000 units x 50% x 15) 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 (1000 units x 23) (1500 units x 23) (65,000 units x Rs. 8) (65,500 units x Rs. 9) (65,500 units x Rs. 4) (65,500 units x Rs 2)

16,000 15,000

8,000 7,500

COST OF GOODS SOLD (Actual) W-1 Adjustment of Under applied FOH Actual FOH Applied FOH UNDER APPLIED FOH

398,700 393,000 5,700

OR Fixed FOH Applied FOH Actual FOH Difference Variable FOH Applied FOH Actual FOH Difference

131,000 135,000

262,000 263,700

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 Add: Work in process (at start) Direct material (2000 units x 100% x 8) Conversion (2000 units x 50% x 13) Total Work in process Less: Work in process (at end) Direct material (1000 units x 100% x 8) Conversion (1000 units x 50% x 13) COST OF GOODS MANUFACTURED (VARIABLE)

16,000 13,000

8,000 6,500

Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end) COST OF GOODS SOLD (Variable)

(1000 units x 21) (1500 units x 21)

Add: Adjustment of variable FOH cost / Controllable variance / Variable Variance Applied FOH 262,000 Actual FOH 263,700 Difference COST OF GOODS SOLD (Variable) Absorption Sales Less: COGS Gross profit / Net income Direct Sales Less: COGS (Variable) Gross C.M / Net C.M. Less: Fixed cost 1,600,000 (1,377,200) 222,800 (135,000)

1,600,000 (1,512,200)

Required no. 3: Reconcilation Statement of Operating Income: Operating Income: Absorption Costing Direct Costing Difference Work in Process Inventory Changes: Absorption Costing (Decrease) Direct Costing (Decrease) Difference in inventory

(31,000 - 15,500) (29,000 - 14,500)

Finished Goods inventory changes: Absorption Costing (Increase) Direct Costing (Increase) (23,000 - 34,500) (21,000 - 31,500)

Conversion 66,000 (2,000) 64,000 1,000 500 65,500

d:
(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 23,000 1,541,000 (34,500) 1,506,500

5,700

1,512,200

4,000

1,700 5,700

Direct costing

ble) 520,000 589,500 262,000

1,371,500

29,000 1,400,500

(14,500) 1,386,000

21,000 1,407,000 (31,500) 1,375,500

ariable Variance

1,700 1,377,200

87,800

87,800

87,800 87,800 -

15,500 14,500 1,000

Dec Dec Dec

(11,500) (10,500) (1,000) Dec Inc

Inc Inc Inc 1,000 (1,000) -

COGS (absorption) COGS (Direct)

1,308,700 1,180,000

REQUIRED NO:1 Equivalent Production Unit: Material Units completed and transferred out Less: Units in process (at start) - all units Units started and completed during the period Add: Units in process (at start) - work this period Add: Units in process (at end) - work this period EQUIVALENT PRODUCTION UNIT Conversion 110,000 110,000 (10,000) (10,000) 100,000 15,000 115,000 100,000 6,000 5,000 111,000

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 REQUIRED NO. 4: OVER / UNDER applied Fixed FOH Direct Costing 3.00 6.00 1.00 10.00 Absorption 3.00 6.00 1.00 1.10 11.10

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) 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) COST OF GOODS SOLD Adjustment of (over) / under applied Fixed Factory overhead COST OF GOODS SOLD (Actual) (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

45,000 40,500

(20,000 units x 11.10) (12,000 units x 11.10)

(W-3)

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) 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)

30,000 28,000

45,000 35,000

Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end) COST OF GOODS SOLD (Variable) 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)

(20,000 units x 10) (12,000 units x 10

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 Less: Fixed factory overhead NET INCOME (Direct Costing)

7,700 2,360,000 (1,180,000) 1,180,000 (121,000) 1,059,000

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)

4,400 5,500

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

1,100

22,000 13,200 8,800 7,700

Work in process: (at start) (10,000 units x 2/5) (at end) (15,000 units x 1/3) Increase in units Finished goods: (at start) (20,000 units x 100%) (at end) (12,000 units x 100%) Decrease in units

4,000 5,000 1,000

20,000 12,000 8,000 Net Decrease Fixed FOH rate 7,000 1.10 7,700

(10000 x 3/5) (15000 x 1/3)

345,000 666,000 111,000 122,100 1,244,100

62,400 1,306,500

(85,500) 1,221,000 222,000 1,443,000 (133,200) 1,309,800 (1,100) 1,308,700

345,000 666,000 111,000

1,122,000

58,000 1,180,000

(80,000) 1,100,000

200,000 1,300,000 (120,000) 1,180,000

Increase

Decrease

Income statement under Absorption costing Sales Less: Cost of Goods Sold: Direct Material Direct Labor Variable Factory overhead Fixed Factory overhead 440,000 60,000 60,000 120,000 96,000 336,000 336,000 (56,000) 280,000 (280,000) 160,000 (70,000) 90,000

($96,000 / 24,000 = $ 4 x 24,000 units)

Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end) (4,000 units x $ 14) COST OF GOODS SOLD Adjustment of Fixed (over) / under applied Factory overhead COST OF GOODS SOLD (Actual) Gross Profit Less: Marketing and administrative Expenses Fixed marketing and admin. Expenses OPERATING INCOME 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) COST OF GOODS SOLD (Variable) GROSS CONTRIBUTION MARGIN Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME

440,000 60,000 60,000 120,000 240,000 240,000 (40,000) (200,000) 240,000

(4,000 units x $10)

(96,000) (70,000) (166,000) 74,000