Question

Question #7 A manufacturer produces and sells single product. Summarized data of operations for two years are given below. Rs. Selling price per unit 4,000 Manufacturing costs: Variable cost per unit: Direct materials 880 Direct labour 480 Variable overhead 240 Fixed cost per year 9,600,000 Selling and administrative costs: Variable (per unit sold) 400 Fixed cost per year 5,600,000 MARGINAL AND ABSORPTION COSTING 6

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Answer 1

Direct Costing for Year 1 & 2 880.00 Unit product cost under Absorbtion costing and Direct costing - Absorbtion Absorbtion Particulars Costing - Costing - Year 1 Year 2 Direct materials 880.00 880.00 Direct labor 480.00 480.00 Variable manufacturing overhead 240.00 240.00 Fixed factory overhead (9600000/10000), (9600000/6000) 960.00 1,600.00 Unit product cost 2,560.00 3,200.00 480.00 240.00 1,600.00 Determination of Net Income under Absorbtion costing : Particulars Year 1 Year 2 32,000,000 32,000,000 5,120,000 25,600,000 19,200,000 5,120,000 Sales @ 4000 per unit Less : - Variable cost of goods sold Beginning inventory Add: Variable cost of goods produced Less: Ending inventory Variable cost of goods sold Contribution Margin Less :- Fixed expenses Variable selling and administrative overhead @400 per unit Fixed selling and administrative cost Total Fixed expenses Income from Operations 20,480,000 11,520,000 24,320,000 7,680,000 3,200,000 5,600,000 8,800,000 2,720,000 3,200,000 5,600,000 8,800,000 (1,120,000)

Year 1 Year 2 32,000,000 32,000,000 Determination of Net Income under Direct costing system: Cost of goods sold Sales Less: Cost of goods sold Beginning inventory Add: Cost of goods manufactured Goods available for sales Less: Ending inventory Cost of goods sold Manufacturing margin Less: Variable selling and administrative expenses Gross margin Less: Selling and Admin expenses 3,200,000 9,600,000 12,800,000 16,000,000 16,000,000 3,200,000 12,800,000 19,200,000 3,200,000 16,000,000 12,800,000 19,200,000 3,200,000 16,000,000 Fixed manufacturing cost Fixed selling and administrative cost 9,600,000 5,600,000 15,200,000 800,000 9,600,000 5,600,000 15,200,000 800,000 Total Fixed expenses Income from Operations