Absorption Costing

SaleaLess: Cost Of Goods Sold

Direct MaterialDirect LaborVariable FOHFixed FOH

Cost Of Goods ManufactueredAdd:Finished Goods OpeningTotal Finished Goods AvailableLess: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. ExpensesFixed marketing and admin. Expenses

Net Income / Profit

Direct Costing

SaleaLess:Variable Cost Of Goods Sold

Direct MaterialDirect LaborVariable FOH

Variable Cost Of Goods ManufactueredAdd:Finished Goods OpeningTotal Finished Goods Available at variable costLess:Finished Goods Ending

Variable Cost Of Goods Sold

GROSS CONTRIBUTION MARGINLess:Variable Marketing and administrative Expenses

CONTRIBUTION MARGINLess:Fixed Expenses:Fixed Factory overheadFixed 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 Manufacture xxxxx Add: Finished goods (at start) xxx Total Finished goods available at var xxxxx 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 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* (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* (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) Direct Labor (10,000 units x 480) Variable Factory overhead (10,000 units x 240) Fixed manufacturing cost (10,000 units x 960)

Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available Less: Finished goods (at end) (2,000 units x 2560)

COST OF GOODS SOLD

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

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) Direct Labor (10,000 units x 480) Variable Factory overhead (10,000 units x 240) Variable Cost of Goods Manufactured Add: Finished goods (at start) Total Finished goods available at variable cost Less: Finished goods (at end) (2,000 units x 1600)

COST OF GOODS SOLD (Variable)

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

CONTRIBUTION MARGIN (NET)

Less: Fixed Expenses: Fixed Factory overhead Fixed Marketing and Adminstrative expenses OPERATING INCOME Net Profit

Required no. 3: Reconcilation Statement of Operating Income:

Operating Income: Absorption Costing Direct Costing

Difference

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

Format of Income statement under Absorption costing

32,000,000

8,800,000 4,800,000 2,400,000 9,600,000

25,600,000 - 25,600,000 (5,120,000)

(20,480,000)

11,520,000

5,600,000 3,200,000 (8,800,000)

2,720,000

Format of Income statement under Direct costing

32,000,000

8,800,000 4,800,000 2,400,000 16,000,000 - 16,000,000 (3,200,000)

(12,800,000)

19,200,000

3,200,000

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

9,600,000 5,600,000 (15,200,000)

800,000

2,720,000 800,000 1,920,000

WINTER 2006

Required # 1

Absorption Costing

Year 1 Year 2

Salea 32000000 32000000Less: Cost Of Goods Sold

Direct Material 8800000 5280000Direct Labor 4800000 2880000Variable FOH 2400000 1440000Fixed FOH 9600000 9600000

Cost Of Goods Manufactuered 25600000 19200000Add:Finished Goods Opening 0 5120000Total Finished Goods Available 25600000 24320000Less:Finished Goods Ending 5120000 0Cost Of Goods Sold 20480000 24320000

Gross Profit 11520000 7680000Less:Marketing and administrative Expenses

Variable marketing and admin. Expenses 3200000 3200000Fixed marketing and admin. Expenses 5600000 8800000 5600000 8800000

Net Income / Profit 2720000 -1120000

Required # 2

Direct CostingYear 1 Year 2

Salea 32000000 32000000Less:Variable Cost Of Goods Sold

Direct Material 8800000 5280000Direct Labor 4800000 2880000Variable FOH 2400000 1440000

Variable Cost Of Goods Manufactuered 16000000 9600000Add:Finished Goods Opening 0 3200000Total Finished Goods Available at variable cost 16000000 12800000Less:Finished Goods Ending 3200000 0Variable Cost Of Goods Sold 12800000 12800000GROSS CONTRIBUTION MARGIN 19200000 19200000Less:Variable Mrkt. & Admin Expenses 3200000 3200000

CONTRIBUTION MARGIN 16000000 16000000Less:Fixed Expenses:Fixed Factory overhead 9600000 9600000Fixed Markt. & Admin Expenses 5600000 15200000 5600000 15200000

OPERATING INCOME 800000 800000

sumer2006

Required# 1Absorption Costing Method

Salea 4500000Less: Cost Of Goods Sold

Opening Stock 1100000Add:Variable manufacturing cost(24000 units * Rs.50) 1200000Fixed manufacturing cost 1440000

Cost of Production 3740000Less:Closing Stock (Rs.4000*110) 440000

Cost Of Goods Sold 3300000Adjustment of Fixed (over)/ under applied Factory overhear 360000Actual Cost of Goods Sold 3660000 1440000

1800000Gross Profit 840000 360000Less:Marketing and administrative Expenses

Fixed marketing and admin. Expenses 270000

Net Income / Profit 570000

Required# 2Direct Costing Method

Salea 4500000Less:Variable Cost Of Goods Sold

Opening Stock (10000 units @ 50) 500000

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

Less:Variable Marketing and administrative Expenses

Variable marketing and admin. Expenses 20000

Net Contribution Margin 2980000

Less: Fixed CostManufacturing 1800000Marketing 250000 2050000

Profit 930000

Required# 3

Absorption Direct DiffrenceChange in Profit 570000 930000 360000

Opening Stock 1100000 500000 600000Closing Stock 440000 200000 240000 360000

SUMMER - 2005

Required # 1Faricon CorporationAbsorption Costing

Sales (20000 units @ 150 ) 3000000Less: Cost Of Goods Sold

Variable COGS 1500000Fixed COGD (w-1) 300000add: Variances(w - 2) 110000 1910000

Gross Profit 1090000Less: Mrkt.& admin Exp. 500000

Net Profit 590000

Faricon CorporationDirect Costing

Sales (20000 units @ 150 ) 3000000Less:Variable Cost Of Goods Sold 1500000

Add:Variable Variance 20000 1520000Contribution Margin 1480000Less:Fixed Expenese fixed FOH 450000 Mrkt.& Admin 500000 950000

Net Profit 530000

W-1

Plant Capacity 30000 unitsBudgeted FOH 450000Per Unit FOH 15

W - 2

Total unfavorable variable variance 20000Fixed 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) 600000Less: Cost of Goods Sold

Direct Materal 225000Direct Labour 142500Factory OverheadVariable 45000Fixed 37500Under-absorbed FOH 5000 455000

Gross Profit 145000Less: Mrkt. & Admin Expenses

Variable 30000Fixed 28000 58000

Net Profit 87000

Required # 2

Direct Costing Methode

Sales (750 units @ 800) 600000Less: Cost of Goods Sold

Direct Materal 225000Direct Labour 142500Variable FOH 45000Cost of Varible Goods Sold 412500

Gross Contribution margin 187500Less:Variable Mrkt. & Admin Expenses 30000

Contribution Margin 157500Less:Fixed Expenses

Fixed FOH 50000Fixed Mrkt.&Admin 28000 78000Net Profit 79500

Required # 3

RECONCILIATONAbsorptionDirect Difference

Net Income 87000 79500 7500Opening Ending

Inventories 200 350 150Fixed Cost @50(150*50) 7500

working # 1Budgeted FOH 50000Actual FOH 45000

Under-absorbed FOH 5000

SUMMER 2002Modern 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 517500Less:Cost Add:COGM 2932500 2415000

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

2535000 2740000

Gross ProfiVariable(20%of Sales) 980000 1120000Less:Expe 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 367500Less:variabAdd:COGM 2082500 1715000

Total Goods availabe 2082500 2082500Less:Closing Stock 367500 1715000 122500 1960000Gross Contribution Margin 3185000 3640000

980000 1120000

Less: Vari Contribution Margin 2205000 2520000

Fixed FOH 800000 800000Less Fixed Fixed Selling 450000 1250000 450000 1250000

Net Profit 955000 1270000

Required # 3Absorption Direct Difference

RECONCILFirst 6 Mon 1105000 955000 150000

Sec. 6 Mon 1170000 1270000 -100000Net IncomeNet Income

working # 1:

Budgeted FOH units 8000 8000Actual 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. VarianceDirect Labor 2050000 (220000 units @ 10-150000 fav. VarianceVariable FOH 800000 (220000 units @ 4-80000 fav. VarianceFixed FOH 680000 (220000 units @ 3+20000 fav. Variance

Cost Of Goods Manufactuered 5270000Add:Finished Goods Opening 0 5035Total Finished Goods Available 5270000Less:Finished Goods Ending 175000

Cost Of Goods Sold 5095000Gross Profit 1305000Less:Marketing and administrative Expenses

Variable mrkt. and admin. Exp. 960000Fixed mrkt. and admin. Exp. 1080000 2040000

Net Income / Profit -735000

Direct Costing

SaleaLess:Variable Cost Of Goods Sold

Direct MaterialDirect LaborVariable FOH

Variable Cost Of Goods ManufactueredAdd:Finished Goods OpeningTotal Finished Goods Available at variable costLess:Finished Goods Ending

Variable Cost Of Goods Sold

GROSS CONTRIBUTION MARGINLess:Variable Marketing and administrative Expenses

CONTRIBUTION MARGINLess:Fixed Expenses:Fixed Factory overheadFixed Marketing and administrative Expenses

OPERATING INCOME

WINTER - 1998

Solo Limited

Marginal Costing MethodPeriod 1 Period 2 Period 3 Period 4

Sales 27500 22000 30250 24750Less:Variable COGS 15000 15000 13500 15000

Add:Opening F.G 0 0 3000 0Less:Closing F.G 0 15000 -3000 12000 0 16500 -1500 13500

Contribution Margin 12500 10000 13750 11250Less:Fixed Cost 6000 6000 6000 6000Net Profit 6500 4000 7750 5250

Absorption Costing MethodPeriod 1 Period 2 Period 3 Period 4

Sales 27500 22000 30250 24750Less:Cost of Good Sold 21000 21000 18900 21000

Add:Opening stock 0 0 4200 0Less:Closing stock 0 -4200 0 -2100over(under)obsorption FOH 0 21000 0 16800 600 23700 0 18900

Net Profit 6500 5200 6550 5850

working # 1

Variable cost per unit 30Fixed cost per unit (6000/500) 12Total cost per unit 42

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

May-92

Absorption Costing Method

January FebruarySales 80000 120000Less:Cost of Goods Sold

Direct Mfg. cost 80000 20000Fixed FOH 24000 6000COGM 104000 26000Add:Opening stock 0 52000Total COGM available 104000 78000Less:Closing stock 52000 52000 0Add:under absorb FOH 18000 96000

Gross Profit 28000 24000Less: Selling & Admin. Expenses 8000 8000Net Profit 20000 16000

Marginal Costing Method

January FebruarySales 80000 120000Less: variable COGS

Direct Mfg. cost 80000 20000Add:opening stock 0 40000Less:closing stock -40000 40000 0 60000

Contribution Margin 40000 60000Less:Fixed Expenses

Fixed FOH 24000 24000Selling & Admin. 8000 32000 8000 32000

Net Profit 8000 28000