MANAGEMENT ACCOUNTING

Chapter 10 Variable Costing

IV. MULTIPLE CHOICE
1. D. immediately charged against sales as a period cost
2. B. Profit fluctuates with sales
3. B. whether fixed manufacturing cost should be included as
product costs
4. B. inventory costs will tend to vary inversely with production
changes.
5. B. remain constant
6. C. variable costing
7. A. are deferred in inventory when production exceed sales
8. B. more units were produced during the year than were produced
9. A. units sold are less than units produced
10.
A. tend to fluctuate in the same direction as fluctuations in
the level of production
11.
B. P200 decreased
12.
A. P4,800
13.
C. P 2,000
14.
D. P55,000
15.
A. P48,000
16.
A. P8.00
17.
C. P12.00
18.
C. P56,000
19.
B. P8,000 greater than the income under variable costing
20.
C. Increased by P3,000

Solution
1

No.11

Value to be assigned to the finished goods inventory at the end under the
variable costing
Total Manufacturing cost P6.00 x 700 units =P4,200

P4,200
x 100 units = P600
700 units
Value to be assigned to the finished goods inventory at the end under the
absorption costing
Manufacturing Cost
Variable ( P6 x 700)
P4,200
Fixed
( P2 x 700)
1,400
Total Manufacturing cost P5,600
P 5,600
x 100 units = P800
700 units

Total Manufacaturing cost using Absorption costing

P800

Total Manufacaturing cost using Variable costing

P600
Change in the peso amount
if variable costing was used instead of absorption costing
P200

No.12

Value to be assigned to the finished goods inventory at the end under the
variable costing

Direct Material
Direct Labor

-----

Variable Production Cost( P12 x 4,000 units)

Total Manufacturing Cost

P48,000
P48,000

Ending Inventory (4,000 units produced- 3,600 units sold)= 400 units
P48,000 x 400 units = P4,800
4,000 units
2

No. 13
UNIT PRODUCT COST COMPUTATION (VARIABLE COSTING)
Direct Materials

P12.00

Direct Labor

25.00

Variable Manufacturing Overhead

3.00

Unit Product Cost

P40.00

HP CORP.
Income Statement- Manufacturing
For the Year 2013

Sales (19,000 x P100)

P1,900,000

Less: Variable Expenses:

Beginning Inventory

P0

Add Cost of Goods Manufactured(20,000 x P40.00)

800,000

Goods Available for sale

P800,000

Less: Ending inventory(1,000 x P40.00)

Variable Cost of Goods sold

40,000
P760,000

Variable Selling and Administrative Expenses (19,000xP2) 38,000

798,000
Contribution margin

P1,102,000

Less : Fixed expenses:

Manufacturing Overhead
Selling and Administrative Expenses
Net Operating Income

No.14
3

P500,000
600,000

P1,100,000
P2,000

Net income, Absorption Costing

P55,000
Add. Fixed Overhead in beginning inventory
66,000
Total

121,000

Less: Fixed overhead in ending inventory

ADD BACK

Net Income, Variable Costing

81,000
40,000

No. 15
UNIT PRODUCT COST COMPUTATION (ABSORPTION COSTING)
Direct Materials

P1.50

Direct Labor

2.50

Manufacturing Overhead
Fixed (P200,000/100,000)
Variable
Total Manufacturing Cost

1.00

P2.00
3.00
P7.00

LOIS INC.
Income Statement- Manufacturing
For the Year 2013

Sales (98,000 x P10)

P980,000

Less: Cost of Goods sold:

Beginning Inventory

P0

Add Cost of Goods Manufactured(100,000 x P7.00)

700,000

Goods Available for sale

P700,000

Less: Ending inventory(2,000 x P7.00)

P686,000

14,000

Gross margin

P294,000

Less : Selling and Administrative expenses:

Variable (98,000x2.00)

P186,000

Selling and Administrative Expenses

50,000

Net Operating Income

P48,000

No. 16
UNIT PRODUCT COST COMPUTATION (VARIABLE COSTING)
Direct Material

---

Direct Labor

---

Variable Production Cost

P8.00

Unit Product Cost

P8.00

No.17
UNIT PRODUCT COST COMPUTATION (ABSORPTION COSTING)
Direct Materials

P-------

Direct Labor

---------

Production Cost or Mnufacturing Overhead

Fixed (P48,000/12,000)

P4.00

Variable

8.00

Total Manufacturing Cost

12.00
P12.00

No.18
Magic Company
5

P 236,000

Income Statement- Manufacturing

For the Year 2013
Sales (10,000 x P24)

P 240,000

Less: Variable Expenses:

Beginning Inventory

P0

Add Cost of Goods Manufactured(12,000 x P8.00)

96,000

Goods Available for sale

P96,000

Less: Ending inventory(2,000 x P8.00)

16,000

Variable Cost of Goods sold

P80,000

Variable Selling and Administrative Expenses (10,000xP2) 20,000

100,000
Contribution margin

P140,000

Less : Fixed expenses:

Manufacturing Overhead
Selling and Administrative Expenses
84,000
Net Operating Income

No.19

P48,000
36,000

P
P56,000

Magic Company
Income Statement- Manufacturing
For the Year 2013

Sales (10,000 x P24)

P240,000

Less: Cost of Goods sold:

Beginning Inventory

P0

Add Cost of Goods Manufactured(12,000 x P12.00)

144,000

Goods Available for sale

P144,000

Less: Ending inventory(2,000 x P12.00)

P120,000

24,000

Gross margin

P120,000

Less : Selling and Administrative expenses:

Variable (10,000x2.00)

P20,000

Fixed

36,000

Net Operating Income

P 50,000
P64,000

P8000 GREATER THAN NET INCOME UNDER VARIABLE

COSTING WHICH P56,000
No. 20
Net income, Absorption Costing
90,000
Fixed Manufacturing Overhead cost
Net Income, Variable Costing

4,500/ 1.5= 3000

(3,000x1.5)(4,500)
85,500