NAME: GENIE ROSE GABARO

ACT121: STRATEGIC COST MANAGEMENT

ASSIGNMENT

Exercise 1 (Variable and Absorption Costing Unit Product Costs and Income Statements)

Requirement 1

a. The unit product cost under absorption costing would be:

Direct materials P18

Direct labor 7
Variable manufacturing overhead 2
Total variable manufacturing costs 27
Fixed manufacturing overhead (P160,000/20,000 units) 8
Unit product cost P35

b. The absorption costing income statement:

Sales (16,000 units x P50 per unit) P800,000

Less cost of goods sold:
Beginning inventory P 0
Add cost of goods manufactured (20,000 units x 35 per unit) ​700,000
Goods available for sale 700,000
Less ending inventory (4,000 x P35 per unit) 140,000560,000
Gross margin 240,000
Less selling and administrative expenses (16,000unitsx5per unit) +110,000=190,000) 190,000
Net operating income P50,000

Requirement 2

a. The unit product cost under variable costing would be:

Direct materials P18

Direct labor 7
Variable manufacturing overhead 2
Unit product cost 27

b. The variable costing income statement:

Sales (16,000 units x P50 per unit) P800,000

Less variable expenses:
Variable cost of goods sold:
Beginning inventory P 0
Add variable manufacturing costs (20,000units x 27 per unit) 540,000
Goods available for sale 540,000
Less ending inventory (4,000units x 27 per unit) 108,000
Variable cost of goods sold (16,000units x 27 per unit) 432,000
Variable selling expense (16,000units x 5 per unit) 80,000 512,000
Contribution Margin 288,000
Less fixed expenses:
Fixed manufacturing overhead 160,000
Fixed selling and administrative 110,000270,000
Net Operating Income P18,000

Exercise 2 (Unit Product Cost – Absorption Costing)

Requirement 1

Direct materials 1,200

Direct Labor 1,400
Variable manufacturing overhead 500
Fixed manufacturing overhead (6,000,000/10,000 units) 600
Unit product cost 3,700

Requirement 2

Direct materials 1,200

Direct labor 1,400
Variable manufacturing overhead 500
Unit product cost 3,100

Exercise 3: (Variable Costing Unit Product Cost and Income Statement: Break Even)

Requirement 1
Under variable costing, only the variable manufacturing costs are included in product costs.
Direct materials P 600
Direct labor 300
Variable manufacturing overhead 100
Unit product cost ​ P​1,000

Requirement 2
The variable costing income statement appears below:

Variable Costing Income Statement

Sales P18,000,000
Less variable expenses:
Variable cost of goods sold:
Beginning inventory P 0
Add variable manufacturing costs (10,000units x 100 per unit) 10,000,000
Goods available for sale 10,000,000
Less ending inventory (1,000units x 100 per unit) ​1,000,000
Variable cost of goods sold (9,000units x 100 per unit) 9,000,000
Variable selling expense (9,000units x 20 per unit) 1,800,000 10,800,000
Contribution Margin 7,200,000
Less fixed expenses:
Fixed manufacturing overhead 3,000,000
Fixed selling and administrative 4,500,000 ​ 7,500,000
Net Operating Income ​P(300,000)

Requirement 3
Selling price per unit P2,000
Variable cost per unit 1,200
Contribution margin per unit P 800

Break-even unit sales = Fixed expenses = ​ P7,500,000 ​ = 9​ ,375​ units

Unit Contribution Margin 800 per unit

Problem 1
Requirement 1: Variable Costing Method
Romero Parts, Inc.
Income Statement – Manufacturing
For the Year Ended December 31, 20X3
Sales P20,700,000
Less: Variable Cost of Sales
 Inventory, Jan.1 P1,155,000
Current Production 7,700,000
Total Available for Sale P8,855,000
Inventory, Dec.31 805,000 8,050,000
Contribution Margin P12,650,000
Less: Fixed Costs and Expenses 6,000,000
Net Income P 6,650,000

Requirement 2: Absorption Costing Method

Romero Parts, Inc.
Income Statement – Manufacturing
For the Year Ended December 31, 20X4
Sales P26,100,000
Less: Cost of Goods Sold
Inventory, Jan.1 P 1,380,000
Current Production 16,100,000
Total Available for Sale P17,480,000
Inventory, Dec.31 747,500
Cost of Sales – Standard P16,732,500
Favorable Capacity Variance 900,000 15,832,500
Income from manufacturing ​P10,267,500

Requirement 3: Variable Costing Method

Romero Parts, Inc.
Income Statement – Manufacturing
For the Year Ended December 31, 20X4
Sales P26,100,000
Less: Variable Cost of Sales
Inventory, Jan.1 P 805,000
Production 9,800,000
Total Available for Sale P10,605,000
Inventory, Dec.31 455,000 10,150,000
Contribution Margin P15,950,000
Less: Fixed Costs and 5,400,000
Net Income P10,550,000

Reconciliation
Net Income, absorption costing P10,267,500
Add: Fixed Factory Overhead Inventory,1/1 575,000
Total P10,842,500
Les: Fixed Factory Overhead Inventory. 12/31 292,500
Net Income, direct costing P10,550,000

Problem 2

Requirement 1
Honey Company
Income Statement – Direct Costing
For the Year Ended December 31, 20X3

Sales P280,000
Less: Variable Cost of Sales
Finished Goods Inventory, Jan.1 P 4,000
Current Production 120,000
Total Available for Sale P124,000
Finished Goods Inventory, Dec.31 12,000
Variable Cost of Sale – Standard P112,000
Unfavorable Variance 5,000 117,000
Contribution Margin Manufacturing P163,000
Less: Variable Marketing Expenses 28,000
Contribution Margin - Final P 135,000
Less: Fixed Costs and Expenses:
Fixed Factory Overhead P54,000
Fixed Marketing and Administrative Expenses 20,000 74,000
Net Income P 61,000
Requirement 2

Honey Company
Income Statement-Absorption Costing
For the Year Ended December 31, 20X3
Sales
P280,000
Less: Cost of Sales
Finished goods inventory, Jan 1 (1,000 x P5.50) P 5,500
Current production costs:
Variable (30,000 x 4.00) P120,000
Fixed (30,000 x 1.50) 45,000 165, 000
P170,500
Less: Finished goods inventory, Dec. 31 (3,000 x 5.50) 16,500
Cost of sales-Standard P154,000
Add (Deduct) Variance
Unfavorable variable manufacturing cost variances 5,000
Under applied fixed factory overhead (6,000x1.50) 9,000
Cost of Sales ​P168,000
Gross Profit `
P112,000
Less: Selling and administrative expenses
Variable 28,000
Fixed 20,000 48,000
Net Income ​ P64,000

Problem 3
Requirement 1
Direct Materials P8
Direct Labor 10
Variable manufacturing overhead 2
Unit product cost P20

` Year 1 Year 2
Sales P1,000,000 P1,500,000
Less: Variable expenses
Variable Cost of Goods Sold @20 per unit 400,000 600,000
Variable Selling and Administrative @3 per unit ​ 60,000
90,000

Total variable expense ​ 460,000 ​ 690,000

Contribution Margin 540,000 810,000
Less fixed expenses:
Fixed manufacturing overhead 350,000 350,000
Fixed selling and administrative ​ 250,000 ​ ​ 250,000
Total fixed expenses 600,000 ​ ​ 600,000
Net operating income (loss) ​ P (60,000) ​ ​ P 210, 000
Requirement 2

Variable costing net operating income (loss) P (60,000) P210, 000

Add: Fixed MOH cost deferred in inventory under
absorption costing (5,000 units x 14 per unit) 70,000
Deduct: Fixed MOH cost released from inventory
under absorption costing (5,000x14) (70, 000)
Absorption costing net operating income ​ P 10,000 P140,000

Multiple Choice
1. D
2. B
3. B
4. B
5. B
6. C
7. A
8. B
9. A
10. A
11. B
12. A
13. C
14. D
15. B
16. A
17. C
18. C
19. B
20. C