Sports Innovators has developed a new desi UNIVERSITY OF SANTO TOMAS, oA AMV-COLLEGE OF AC ‘COUNTAN ee ACCOUNTING» ILE-AND ABSORPTION COSTING Handout 7-1, Legaz Company, which has only one product, most recent month of operations: et eee ee Selling price .. eer P120 Units in beginning inventory 100 Units produced Bia 3,900 Units sold... 31600 Units in ending inventory 400 Variable costs per unit: Direct materials .. Direct labor .. ‘Variable manufacturing overhead. Variable selling and administrative .. Fixed costs: Fixed manufacturing overhead ... 54,600 Fixed selling and administrative snes P2,600 ‘The company produces the same number of units every month, although the sles fn units vary Fon menth te month, The company's variable costs per unit and total fixed costs have been ‘constant from month to month, Required: a. Whatis the unit product cost for the month under variable costing? b, What is the unit product cost for the month under absorption costing? ee patS an income statement for the month using the contribution format and the variable costing method. GP Prepare an income statement for the month using the abs © Reconcile the variable costing and absorption costing ne sorption costing method. operating incomes for the month. Handout 7-2 are used in track and field competition. ign to produce hurdles that ields when hit by a runner and its height is wative in that the hurdle yi ‘The company's hurdle design is inno Tie irdinrily easy to adjust. Management estimates expected ‘annual capacity to be 90,000 units; cat i apolid using expected annual capcity. The company’s cost ‘accountant predicts the following, current year activities and related costs: Standard unit variable manufacturing costs siz Variable unit selling expense $5 Fixed manufacturing overhead $480,000 Fixed selling and administrative expenses $136,000 Selling price per unit $35 Units of sales 80,000 Units of production 85,000 10,000 Units in beginning inventory 1, management expects no variances from the Other than any possible under- or overapplied fixed overhead, ‘ethead is to be written off to Cost of Goods previous manufacturing costs, Under- or overapplied fixed ov Sold. Page 1 of 2paired: ‘84D ermine the amount of under- or overapplied fixe costing and (b) absorption costing. *f overhead using (a) variable : projected income 2 statements using (a) variable costing and (b) absorption Reconcile the incomes derived in part 2. Handout 7-3 Sherrill Corporation produces a si fog oe operations, single product. The following is a cost structure applied to its first year of Sales price it Variable costs: oe SG&A it 2 Production 3 perunit Fixed costs (total cost incurred for the year): SG&A : $14,000 Production ~ $20,000 During the first year, Sherrill Corporation manufactured 5,000 units and sold 3,800. There was no beginning or ending work-in-process inventory. a. How much income before income taxes would be reported if Stanley uses absorption costing? b. How much income before income taxes would be reported if variable costing was used? ©. Show why the two costing methods give different income amounts. Handout 7-4 ‘Assume the following data for C Company: it i it fixed expenses P 5 Unit Sales price P 200 Unit fixed e : Unit variable cost of production 120 Beginning inv. 4,000 units Unit fixed overhead 20 ‘Normal Cap. 20,000 units Unit variable expenses 10 Production = 21,000 units Sales = 22,000 units Required: Show income statements under variable and absorption costing.