ACTIVITY 1.

1.ABSORPTION COSTING METHOD

a.
Direct Materials 18
Direct Labor 7
Manufacturing Overhead 2
Variable Cost 27
Find Manufacturing Overhead (160,000/20,000) 8
Absorption unit cost per Product 35

Banahan Ahuy Company

Absorption Costing Income Statement

Sales (16,000 units x 50) 800,000

Cost of Good Solds (16,000 units x 35) -560,000
Gross Profit 240,000
Operating Expenses
Selling and Administrative Expenses (16,000 units x 5)+ 110,000) -190,000
Net Operating Income 50,000

2. VARIABLE COSTING METHOD

a.
Direct Materials 18
Direct Labor 7
Manufacturing Overhead 2
Variable unit cost per product 27

Banahan Ahuy Company

Variable Costing Income Statement

Sales (16,000 units x 50) 800,000

Variable Costs
Cost of Good Solds (16,000 units x 27) 432,000
Selling and Administrative Expenses (16,000 units x 5) 80,000
Total Variable Costs -512,000
Contribution Margin 288,000
Fixed Costs
Manufacturinng Overhead 160,000
Selling and Administrative Expenses 110,000
Total Fixed Expenses -270,000
Net Operating Income 18,000
3. RECONCILE THE ABSORPTION COSTING NET INCOME AND THE VARIABLE COSTING NET INCOME

NET INCOME, ABSORPTION COSTING 50,000

Add: Fixed Overhead in beginning Inventory 0
Total 50,000
Less: Fixed Overhead in Ending Inventory -32,000
Net Income Variable Costing 18,000

Ending Inventory would be calculated as

Absorption Costing Variable Costing
Units Produced 20,000 20,000
Less: Units Solds 16,000 16,000
Ending Inventory in Units 4,000 4,000
Multiplied by: Unit Product Cost 35 37
Ending Inventory in Pesos 140,000 108,000

140,000
-108,000
32,000 Fixed Overhead in Ending Inventory