Johson realty

2004
Particulars Absorption Variable
Cost of land $10,000,000 $10,000,000
No. of plots 200 200
Cost of land of each plot 50000 50000
Clearance cost 5,100 5,100
Storm Drain Installation 8,000 8,000
Sales Commission @ 10% 16,000 16,000
Administraton Charges 4,250
Cost per plot 84,250 79,100

Administration Charges
Fixed cost for the year 850,000 850,000
No. of plots 200 200
Fixed Cost per plot 4,250 It is period Cost

2 Profit Statement for 2005

Particulars Absorption Variable
Sales unit 300 300
Sales Value 48,000,000 48,000,000
Less:
Cost of Goods Sold

Per plot Cost 83,250 79,000

Cost of Goods Sold $24,975,000 23,700,000
Administration Costs 850,000
Profit 23,025,000 23,450,000

3 Reconciliation of Profit
Profit under Absorption Method $23,025,000
Add:
Fixed Administration cost per plot 4,250
No. of plots sold in 2005 of 2004 100
Administarion Charges 425,000
Profit under Variable Method 23,450,000
The differences occurred in 2005 because the unit cost for 100 plots was shifted under absorption costing from 200

4 Under absorption costing the cost of goods sold is calculated by merely charging the fixed overheads alloted to the
nder absorption costing from 2004 to the year of sale 2005

he fixed overheads alloted to the goods sold in the year. Therefore as the inventory is build up the fixed cost for the same is not expensed
for the same is not expensed out and the cost of goods sold decreases thus increasing the profit for the year.