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# Variable Costing antonio jaramillo dayag

I
Assume that BBB Company had the following statistics regarding the product:
Production 40,000 units
Sales 30,000 units
Sales price per unit P3.00
Variable cost per unit:
Materials P0.60
Labor 0.80
Selling expenses 0.15
Fixed cost for the period
Manufacturing P12,000
Selling expenses 9,000
Instructions:
1. What is the unit cost, under:
a. Absorption Costing
b. Direct Costing
2. How much is the inventory value under:
a. Absorption Costing
b. Direct Costing
3. Prepare an income statement using:
a. Absorption Costing
b. Direct Costing
4. Reconcile the net income figures of requirement (3)
II
The following data were taken from the records of DDD Company:
Beginning Ending
Finished goods inventory 1,000 2,200
Cost data per unit:
Direct materials P 20 P 20
Direct labor 25 25
Variable 15 15
Fixed 12 10
Total P 72 P 70
Selling price per unit is P100 and production during the year is
10,000 units. Selling and administrative expenses:
Variable……………………………………………………………………P 80,000
Fixed…………………………………………………………………………… 90,000
Instructions:
1. Prepare income statement using absorption costing and
variable costing.
2. Reconcile the net income.
III
The following data pertain to the operations of the Petra
Manufacturing Company for the year ended 2008:
Sales in kilogram 75,000
Finished goods inventory, January 1, 2008 22,000 kgs.
Finished goods inventory, December 31, 2008 17,000 kgs.
Sales price P10 per kg.
Manufacturing costs:
Variable cost per kilogram of production P4
Fixed factory overhead (normal capacity:
80,000 kilograms) P160,000
Selling and administrative expenses:
Variable cost per kilogram of sales P1
Fixed selling and administrative expenses P150,000
Variances will be closed to cost of goods sold.
Instructions:
1. Income statement for 2008 under:
a. Absorption Costing
b. Direct Costing
2. An accounting for the difference in net operating income
under the two concepts.
3. Assuming the finished goods inventory as of January 1, 2008
was 14,000 kilograms, prepare an income statement for 2008
under:
a. Absorption Costing
b. Direct Costing
IV
The following information pertains to Tom Goons Company’s Product
X:
Standard costs:
Variable manufacturing, P 12 per unit
Fixed manufacturing (based on normal capacity of
20,000 units), P4 per unit
Variances:
Variable manufacturing –unfavorable, P12,000
Volume variance – favorable, P8,000
Other data:
Production, 22,000 units
Sales (25 per unit), 16,000 units
Operating costs (60% fixed), P64,000
Instructions:
1. Income statement for 2008 under:
a. Absorption Costing
b. Direct Costing
2. An accounting for the difference in net operating income
under the two concepts.
V
Moneyless Company has been using a standard absorption costing
system. Standard variable manufacturing costs are P6 per unit.
Standard fixed factory overhead is P1 per unit (P400,000 divided
400,000 units of normal activity). The sales price is P10 per
unit. Variable marketing and administrative costs are P2 per unit
sold. Fixed marketing and administrative costs are P250,000.
Beginning inventory in 2008 was 70,000 units; ending inventory
was 50,000 units. Variances from standard variable manufacturing
costs in 2008 totaled P30,000, unfavorable. All variances were
written-off directly as an adjustment to the cost of goods sold.
Sales in 2008 were 370,000 units.
Instructions:
1. Income statement for 2008 under:
a. Absorption Costing
b. Direct Costing
2. An accounting for the difference in net operating income
under the two concepts.
VI
Assume the following data for FFF Company, which uses standard
costs:
Normal capacity, 20,000 units
Actual production, 19,500 units
Sales, 22,000 units at P9.80 per unit
Standard variable costs per unit of production:
Materials, P2
Labor, P2.2
Selling expenses, P.8
Fixed costs and expenses for the period:
Manufacturing overhead at p1.20 per unit for 20,000
units capacity, P24,000
Selling expenses, P21,000
Net variance in variable – favorable, P1,800
Instructions:
1. Income statement for 2008 under:
c. Absorption Costing
d. Direct Costing
2. An accounting for the difference in net operating income
under the two concepts.
VII
AAA Company wishes to use direct costing in accounting for its only product, with
standard unit manufacturing costs as follows:
Materials 5 P
Direct labor 4
Variable factory overhead 3
P 12
The fixed factory overhead budget is P160,000 and normal capacity
is 80,000 units. During 2008, AAA’s first year of operations,
85,000 units were produced, of which 75,000 were sold at P25
each.
Actual costs were:
Materials used P 434,000
Direct labor 350,000
Variable factory overhead 250,000
Fixed factory overhead 162,000
Variable marketing and administrative expenses 75,000
Fixed marketing and administrative expenses 100,000
All variances will be closed to cost of goods sold.
Instructions:
1. Compute the manufacturing cost variances:
a. Variable manufacturing cost variance
b. Fixed overhead volume variance/Idle capacity variance
2. Income statement for 2008 under:
a. Absorption Costing
b. Direct Costing
3. An accounting for the difference in net operating income
under the two concepts.
VIII - Throughput Costing, Absorption Costing, Variable Costing
Coastal Corporation, which uses throughput costing, began
operations at the start of the current year. Planned and actual
production equaled 20,000 units, and sales totaled 17,500 units
at P95 per unit. Cost data for the year were as follows:
Direct materials (per unit) P 18
Conversion cost:
Direct labor 160,000
Variable manufacturing overhead 280,000
Fixed manufacturing overhead 340,000
Selling and administrative costs (total) 430,000
The company classifies direct materials as a throughput cost.
Required:
A. Compute the company's total cost for the year.
B. How much of this cost would be held in year-end inventory
under (1) absorption costing, (2) variable costing, and
(3) throughput costing?
C. How much of the company's total cost for the year would
appear on the period's income statement under (1)
absorption costing, (2) variable costing, and (3)
throughput costing?
D. Compute the year's throughput-costing net income.
A. Direct materials (20,000 P 360,000
units x P18)
Direct labor 160,000
Variable manufacturing 280,000
Fixed manufacturing overhead 340,000
Selling and administrative 430,00
costs 0
Total P1,570,000

## B. The year-end inventory of 2,500 units (20,000 - 17,500) is

costed as follows:

## Absorption Variable Throughp

Costing Costing ut
Costing
Direct materials P 360,000 P360,000 P360,000
Direct labor 160,00 160,00
0 0
Variable manufacturing 280,00 280,00
Fixed manufacturing overhead 340,00
0
Total product cost P1,140,000 P800,000 P360,000
Cost per unit (Total ÷ P57 P40 P18
20,000 units)
Year-end inventory (2,500
units x cost per unit) P 142,500 P100,000 P45,000

## C. The total costs would be allocated between the current

period's income statement and the year-end inventory on the
balance sheet. Thus:
Absorption costing: P1,570,000 - P142,500 = P1,427,500
Variable costing: P1,570,000 - P100,000 = P1,470,000
Throughput costing: P1,570,000 - P45,000 = P1,525,000

## D. Throughput income: Sales revenue (17,500 units x P95) –

P1,525,000 = P137,500

IX - Throughput Costing
Krell Corporation, which uses throughput costing, began operations at
the start of the current year (20x1). Planned and actual production
equaled 40,000 units, and sales totaled 35,000 units at P80 per unit.
Cost data for 20x1 were as follows:

## Direct materials (per unit) P 20

Conversion cost:
Direct labor 215,000
Variable manufacturing overhead 340,000
Fixed manufacturing overhead 528,000
Selling and administrative costs:
Variable (per unit)
8
Fixed 220,000

## The company classifies direct materials as a throughput cost.

Required:
A. What is meant by the term "throughput costing"?
B. Compute the cost of the company's year-end inventory.
C. Prepare Krell's income statement for the year.
A. Throughput costing is a technique that assigns only the unit-level
spending amounts for direct costs as the cost of products or
services. In this case, direct materials is the only item that
qualifies as a throughput cost.
B. Ending inventory: 0 + 40,000 units - 35,000 units = 5,000 units;
5,000 units x \$20 = \$100,000
C. Krell Corporation
Throughput-Costing Income Statement
For the Year Ended December 31, 20x1

## Sales revenue (35,000 units x P80) P2,800,000

Less: Cost of goods sold (35,000 units x P20) 700,000
Gross margin P2,100,000
Less: Operating costs
Direct labor P 215,000
Variable manufacturing overhead 340,000
Fixed manufacturing overhead 528,000
Variable selling and administrative costs (35,000 280,000
units x P8)
Fixed selling and administrative costs 220,000
Total operating costs P 1,583,000
Net income P 517,000