absorption & direct costing - 2011

8/12/2019 Absorption & Direct Costing - 2011

1/39

Sales xxxxx

Less: Cost of Goods Sold:

Direct Material xxx

Direct Labor xxx

Variable Factory overhead xxx

Fixed Factory overhead xxx

Cost of Goods Manufactured xxxxx

Add: Finished goods (at start) xxx

Total Finished goods available xxxxx

Less: Finished goods (at end) (xxx)

COST OF GOODS SOLD xxxx

Adjustment of Fixed (over) / under

applied Factory overhead xxx/(xx)

COST OF GOODS SOLD (Actual) (xxxxx)

Gross Profit xxxx

Less: Marketing and administrative

Expenses (xxx)

Operating Income xxxx

Sales xxxxx

Less: Cost of Goods Sold (Variable):

Direct Material xxx

Direct Labor xxx

Variable Factory overhead xxx

Variable Cost of Goods Manufactured xxxxx

Add: Finished goods (at start) xxx

Total Finished goods available at variable cost xxxxx

Less: Finished goods (at end) (xxx)

COST OF GOODS SOLD (Variable) (xxxx)

GROSS CONTRIBUTION MARGIN xxxx

Less: Variable Marketing and administrative

Expenses (xxx)

NET CONTRIBUTION MARGIN xxxx

Less: Fixed Expenses:

Fixed Factory overhead xxx

Format of Income statement under Absorption costing

Format of Income statement under Direct costing


2/39

Fixed Marketing and Adminstrative expenses xxx (xxx)

OPERATING INCOME xxxxxx


3/39

3rd. QuarterFG (at start) 40,000Add: Produciton (100,000 x 80%) 80,000

Total FG available 120,000

Less: Sold units (100,000 x 80%) (80,000)FG (at end) 40,000

4th Quarter"FG (at start) 40,000Add: Produciton (100,000 x 50%) 50,000

Total FG available 90,000Less: Sold units (100,000 x 80%) (80,000)

FG (at end) 10,000

1st Quarter:FG (at start) 10,000Add: Produciton (100,000 x 110%) 110,000

Total FG available 120,000Less: Sold units (100,000 x 80%) (80,000)

FG (at end) 40,000


4/39

Sales (7,500 units x $80)


Direct Material used ($ 30 x 9,000 units) 270,000

Direct Labor used ($19 x 9,000 units) 171,000

Variable Factory overhead ($6 x 9,000 units) 54,000

Fixed Factory overhead ($5 x 9,000 units) 45,000

Cost of Goods Manufactured 540,000

Add: Finished goods (at start) (2,000 units x $60) 120,000

Total Finished goods available 660,000

Less: Finished goods (at end) (3,500 units x $60) (210,000)

COST OF GOODS SOLD 450,000

Adjustment of Fixed (over) / under ($50,000 - $45,000) 5,000

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) 30,000

Fixed marketing and admin. Expenses ($2.80 x 10,000 units) 28,000

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)



5/39

Sales (7500 units x Rs. 80)


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


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



6/39

Opening Inventory (in units) 2,000

Difference in units (Decrease in FG) 1,500

Fixed FOH rate 5

7,500

Net income - Absorption costing 87,000

Net income - Direct costing 79,500

7,500

Method # 3:


Less: Increase in FG, increase in unit cost by 5

(1500 units x Rs 5) (7,500)

Net income - Direct Costing 79,500


7/39

600,000

(455,000)

145,000

(58,000)

87,000


8/39

600,000

(412,500)

187,500

(30,000)

157,500

(78,000)

79,500


9/39

Sales (20,000 units x$15)


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


Fixed marketing and admin. Expenses

OPERATING INCOME


= Rs. 540,000 / 9,000 units

= Rs. 60 OR (30+ 19 + 6 + 5)

Sales (20,000 units x$15)

Less: Variable cost of goods sold

Variable manufacturing cost (30,000 x $5)

Cost of Goods Manufactur

Add: Finished goods (at start) -

Total Finished goods available

Less: Finished goods (at end) (10,000 units x $ 5)

COST OF GOODS SOLD - Va

Contribution Margin


Fixed Factory overhead

Fixed marketing and admin. Expenses

NET LOSS

Format of Income statement under Absorption c

Format of Income statement under Direct cost


10/39


Method # 1:

Operating Income:

Absorption Costing

Direct Costing

DifferenceInventory Changes:

Absorption Costing (Increase) (210,000 - 120,000)

Direct Costing (Increase) (192,500 - 110,000)

Difference in inventory

Method #2:


Ending Inventory (in units) 3,500

Opening Inventory (in units) 2,000

Difference in units (Decrease in FG) 1,500

Fixed FOH rate 5

7,500


Net income - Direct costing 79,500

7,500

Method # 3:


Less: Increase in FG, increase in unit cost by 5

(1500 units x Rs 5) (7,500)

Net income - Direct Costing 79,500


11/39

300,000

150,000

180,000

330,000

-330,000

(110,000)

(220,000)

80,000

(25,000)

55,000

300,000

150,000

d (Variable) 150,000

-

150,000

(50,000)

riable (100,000)

200,000

180,000

25,000 (205,000)

(5,000)

sting

ing


12/39

55,000

#REF!

#REF!

90,000

82,500

7,500

Units

Units

Units


13/39

Sales (30,000 units x Rs. 15)


Variable manufacturing cost (24,000 units x 5)

Fixed manufacturing cost (24,000 units x 6)


Add: Finished goods (at start) (10,000 units x 11)


Less: Finished goods (at end) (4,000 units x 11)

COST OF GOODS SOLD


applied Factory overhead (6,000 units x 6)


Gross Profit


OPERATING INCOME


= Rs. 264,000 / 24,000 units

= Rs. 11

Sales (30,000 units x Rs. 15)


Variable manufacturing cost (24,000 units x 5)

Variable Cost of Goods Manufactured


Total Finished goods available at variable cost

Less: Finished goods (at end) (4,000 units x 5)


GROSS CONTRIBUTION MA

Less: Variable Marketing and administrativeExpenses

CONTRIBUTION MARGIN


Fixed Factory overhead

Fixed Marketing and Adminstrative expenses

OPERATING INCOME




14/39


Operating Income:

Absorption Costing

Direct Costing

Difference

Inventory Changes:

Absorption Costing (Increase)

Direct Costing (Increase)



15/39


Ending Inventory (in units)

Opening Inventory (in units)

Difference in units

Fixed FOH rate


16/39

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

450,000

120,000

120,000

50,000

170,000

(20,000)

(150,000)

GIN 300,000

(2,000)

298,000

180,000

25,000 (205,000)

93,000


17/39

Sales (19,000 units x Rs. 67)Less: Cost of Goods Sold:

Variable manufacturing cost (20,000 units x 42.50)

Fixed manufacturing cost (20,000 units x 10.50)


Total Finished goods availableLess: Finished goods (at end) (1,000 units x 53)

COST OF GOODS SOLD

Gross ProfitLess: Marketing and administrative Expenses

Fixed marketing and admin expensesVariable marketing and admin expenses

OPERATING INCOME

Sales (19,000 units x Rs. 67)Less: Cost of Goods Sold:

Variable manufacturing cost (20,000 units x 42.50)

Variable Cost of Goods Manufactured

Total Finished goods available at variable costLess: Finished goods (at end) (1,000 units x 42.5)


GROSS CONTRIBUTION MARGINLess: Variable Marketing and administrative

Expenses (19,000 units x Rs 5) Overtime premium - Admin Expenses

Format of Income statement under Absorption

Format of Income statement under Direct co


18/39

CONTRIBUTION MARGIN (NET)

Less: Fixed Expenses:Fixed Factory overheadFixed Marketing and Adminstrative expenses

OPERATING INCOME Net Loss

W-1: Calculation of variable cost per unit:

1. Direct material used:

Raw material (at start) 80,000Add: Purchases during the year 460,000

Raw material available for use 540,000Less: Raw material (at end) (40,000)

Direct material used

2. Direct labour used:

Total factory wages 359,000Less: Overtime premium - Management Exp (19,000)

Direct labour used

3. Factory overhead:Outstanding FOH (at end) 6,000

Add: Payment made 18,000

24,000Less: Outstanding FOH (at start) (4,000)

Factory overhead used 20,000Less: Fixed Standing charges (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:


19/39

a) Water & Electric - Standing chargesb) Factory Depreciationc) Lease rental payment - Factory (140,000 - 20,000)

Fixed Manufacturing Cost

Fixed Admin and Marketing Expenses:a) Advertisement costb) Salaries ExpensesFixed Admin and Marketing Expenses


Operating Income:Absorption CostingDirect Costing

Difference

Inventory Changes:Absorption Costing (Increase)

Direct Costing (Increase)


Diffence in Inventory in unitsEnding Inventory (in units)Opening Inventory (in units)

Difference in unitsFixed FOH rate


20/39

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

1,273,000

850,000

850,000

850,000(42,500)

(807,500)

465,500

95,00019,000 (114,000)

osting

ting


21/39

351,500

210,000150,000 (360,000)

(8,500)

500,000

340,000

10,000

850,000


22/39

10,00080,000

120,000

210,000

30,000120,000150,000


23/39

Working:

Equivalent Production Unit:

Material

Units completed and transferred out 66,000Less: Units in process (at start) - all units (2,000)

Units started and completed during the period 64,000

Add: Units in process (at start) - work this period -

Add: Units in process (at end) - work this period 1,000EQUIVALENT PRODUCTION UNIT 65,000

ABSORPTION

Direct Material (65,000 units x Rs. 8)Direct Labor (65,500 units x Rs. 9)Variable Factory overhead (65,500 units x Rs. 4)Fixed Factory overhead (65,500 units x Rs 2)

MANUFACTURING COST

Add: Work in process (at start)

Direct material (2000 units x 100% x 8) 16,000Conversion (2000 units x 50% x 15) 15,000

Total Work in process

Less: Work in process (at end)Direct material (1000 units x 100% x 8) 8,000Conversion (1000 units x 50% x 15) 7,500

COST OF GOODS MANUFACTURED

Add: Finished goods (at start) (1000 units x 23)Total Finished goods availableLess: Finished goods (at end) (1500 units x 23)

COST OF GOODS SOLD

Adjustment of (over) / underapplied Factory overhead

Cost of Goods Sold:


24/39


Adjustment of Under applied FOH

Actual FOH 398,700

Applied FOH 393,000

UNDER APPLIED FOH 5,700

Fixed FOH

Applied FOH 131,000Actual FOH 135,000

Difference

Variable FOHApplied FOH 262,000Actual FOH 263,700

Difference

ECT

Direct Material (65,000 units x Rs. 8)Direct Labor (65,500 units x Rs. 9)Variable Factory overhead (65,500 units x Rs. 4)

Format of Income statement under Direct cos

Cost of Goods Sold (Variable)


25/39

Variable Manufacturing Cost

Add: Work in process (at start)Direct material (2000 units x 100% x 8) 16,000Conversion (2000 units x 50% x 13) 13,000


Less: Work in process (at end)Direct material (1000 units x 100% x 8) 8,000Conversion (1000 units x 50% x 13) 6,500

COST OF GOODS MANUFACTURED (VARIABLE)

Add: Finished goods (at start) (1000 units x 21)Total Finished goods available at variable costLess: Finished goods (at end) (1500 units x 21)


Add: Adjustment of variable FOH cost / Controllable variance / Variable VarApplied FOH 262,000Actual FOH 263,700

Difference


AbsorptionSales 1,600,000Less: COGS (1,512,200)

Gross profit / Net income

Direct

Sales 1,600,000

Less: COGS (Variable) (1,377,200)Gross C.M / Net C.M. 222,800

Less: Fixed cost (135,000)


26/39


Operating Income:Absorption CostingDirect Costing

Difference

Work in Process Inventory Changes:

Absorption Costing (Decrease) (31,000 - 15,500) Direct Costing (Decrease) (29,000 - 14,500)


Finished Goods inventory changes:

Absorption Costing (Increase) (23,000 - 34,500) Direct Costing (Increase) (21,000 - 31,500)


27/39

Conversion

66,000(2,000)

64,000

1,000

50065,500

(260,000 x $2) 520,000589,500262,000131,000

1,502,500

31,000

1,533,500

(15,500)

1,518,000

23,0001,541,000(34,500)

1,506,500

5,700


28/39

1,512,200

4,000

1,7005,700

520,000589,500262,000

ing


29/39

1,371,500

29,000

1,400,500

(14,500)

1,386,000

21,0001,407,000(31,500)

1,375,500

ance

1,700

1,377,200

87,800

87,800


30/39

87,80087,800

-

15,500 Dec14,500 Dec

1,000 Dec

(11,500) Inc(10,500) Inc

(1,000) Inc

Dec 1,000Inc (1,000)

-


31/39

COGS (absorption) 1,308,700COGS (Direct) 1,180,000

REQUIRED NO:1

Equivalent Production Unit:

Material Conversion

Units completed and transferred out 110,000 110,000Less: Units in process (at start) - all units (10,000) (10,000)

Units started and completed during the period 100,000 100,000

Add: Units in process (at start) - work this period - 6,000

Add: Units in process (at end) - work this period 15,000 5,000EQUIVALENT PRODUCTION UNIT 115,000 111,000

REQUIRED NO: 2

Nos. of units sold:

Units

Finished goods (at start) 20,000Add: Units completed during the year 110,000

Total Finished goods available for sale 130,000

Less: Finished goods (at end) (12,000)

Nos. of units sold 118,000

REQUIRED NO: 3

Direct Costing Absorption

Direct Material (2 lbs x 1.50) 3.00 3.00Direct Labor 6.00 6.00Variable FOH 1.00 1.00

Fixed FOH - 1.10TOTAL STANDARD PER UNIT COST 10.00 11.10

REQUIRED NO. 4:

OVER / UNDER applied Fixed FOH


32/39

Actual Fixed FOH 121,000Applied Fixed FOH (111,000 units x 1.10) 122,100

OVER APPLIED FIXED FOH 1,100

Direct Material (115,000 units x Rs. 3)Direct Labor (111,000 units x Rs. 6)Variable Factory overhead (111,000 units x Rs. 1)Fixed Factory overhead (111,000 units x Rs. 1.10)

MANUFACTURING COST

Add: Work in process (at start)Direct material (10,000 units x 100% x 3) 30,000Conversion (10,000 units x 2/5 x 8.10) 32,400


Less: Work in process (at end)Direct material (15,000 units x 100% x 3) 45,000Conversion (15,000 units x 1/3 x 8.10) 40,500

COST OF GOODS MANUFACTURED

Add: Finished goods (at start) (20,000 units x 11.10)


Less: Finished goods (at end) (12,000 units x 11.10)

COST OF GOODS SOLDAdjustment of (over) / underapplied Fixed Factory overhead (W-3)


ECT

Direct Material (115,000 units x Rs. 3)Direct Labor (111,000 units x Rs. 6)Variable Factory overhead (111,000 units x Rs. 1)

Cost of Goods Sold - ABSORPTION

Cost of Goods Sold (Variable)


33/39

Variable Manufacturing Cost

Add: Work in process (at start)Direct material (10,000 units x 100% x 3) 30,000Conversion (10,000 units x 2/5 x 7) 28,000


Less: Work in process (at end)Direct material (15,000 units x 100% x 3) 45,000Conversion (15,000 units x 1/3 x 7) 35,000

COST OF GOODS MANUFACTURED (VARIABLE)


Total Finished goods available at variable costLess: Finished goods (at end) (12,000 units x 10


INCOME STATEMENT:

ABSORPTION COSTING:

Sales (118,000 units x Rs. 20) 2,360,000Less: Cost of Goods sold: (1,308,700)

Gross Profit 1,051,300

Less: Operating expenses -NET INCOME (Absorption Costing) 1,051,300

Direct Costing 7,700

Sales (118,000 units x Rs. 20) 2,360,000Less: Variable cost of goods sold (1,180,000)

GROSS CONTRIBUTION MARGIN / NET C.M 1,180,000

Less: Fixed factory overhead (121,000)

NET INCOME (Direct Costing) 1,059,000

RECONCILATION STATEMENT:

Work in process:(at start) (10,000 units x 2/5 x 1.1) 4,400(at end) (15,000 units x 1/3 x 1.1) 5,500


34/39

Increase in amount 1,100

Finished goods:(at start) (20,000 units x 100% x 1.1) 22,000(at end) (12,000 units x 100% x 1.1) 13,200

Decrease in amount 8,8007,700

Work in process:

(at start) (10,000 units x 2/5) 4,000(at end) (15,000 units x 1/3) 5,000

Increase in units 1,000

Finished goods:

(at start) (20,000 units x 100%) 20,000(at end) (12,000 units x 100%) 12,000

Decrease in units 8,000

Net Decrease 7,000

Fixed FOH rate 1.10

7,700


35/39

(10000 x 3/5)

(15000 x 1/3)


36/39

345,000666,000111,000122,100

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

345,000666,000111,000


37/39

1,122,000

58,000

1,180,000

(80,000)

1,100,000

200,000

1,300,000 (120,000)

1,180,000


38/39

Increase

Decrease


39/39

Sales 440,000


Direct Material 60,000

Direct Labor 60,000

Variable Factory overhead 120,000

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

Cost of Goods Manufactured 336,000


Total Finished goods available 336,000

Less: Finished goods (at end) (4,000 units x $ 14) (56,000)

COST OF GOODS SOLD 280,000


applied Factory overhead -

COST OF GOODS SOLD (Actual) (280,000

Gross Profit 160,000


Fixed marketing and admin. Expenses (70,000

OPERATING INCOME 90,000

Sales 440,000


Direct Material 60,000

Direct Labor 60,000

Variable Factory overhead 120,000

Variable Cost of Goods Manufactured 240,000


Total Finished goods available at variable cost 240,000

Less: Finished goods (at end) (4,000 units x $10) (40,000)

COST OF GOODS SOLD (Variable) (200,000

GROSS CONTRIBUTION MARGIN 240,000


Fixed Factory overhead (96,000)

Fixed Marketing and Adminstrative expenses (70,000) (166,000OPERATING INCOME 74,000

Income statement under Absorption costing

Income statement under Direct costing

absorption & direct costing - 2011

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