EXERCISE 8 Q1

a) Income statement using absorption costing

Unit product cost = Direct materials + Direct labor + Variable overhead +
Fixed overhead
= RM 24 + RM 45 + RM 9 + RM 21
= RM 99

D & E Sdn. Bhd.

Income Statement (Absorption Costing)

RM RM
Sales (14,000 x RM120) 1,680,000
(-) Cost of Goods Sold:
Beginning inventory (800 x RM99) 79,200
(+) Cost of Goods Manufactured (13,500 x RM99) 1,336,500
Goods available for sale 1,415,700
(-) Ending inventory (*300 x RM99) (29,700) (1,386,000)
(-) Overapplied fixed overhead (2,500)
Gross Margin 291,500
(-) Selling and Administrative Expense:
Variable (14,000 x RM7) 98,000
Fixed 104,000 202,000
Net Operating Income 89,500
*800+13,500-14,000 = 300

b) Income statement using variable costing

Unit product cost = Direct materials + Direct labor + Variable overhead
= RM 24 + RM 45 + RM 9
= RM 78
D & E Sdn. Bhd
Income Statement (Variable Costing)

RM RM
Sales (14,000 x RM120) 1,680,000
(-) Variable Expenses:
Beginning inventory (800 x RM78) 62,400
(+) Cost of Goods Manufactured (13,500 x RM78) 1,053,000
Goods available for sale 1,115,400
(-) Ending inventory (*300 x RM78) (23,400)
Variable Cost of Goods Sold 1,092,000
(+) Underapplied variable overhead 4,500
 (+) Variable selling and administrative expenses 98,000 (1,194,500)
(14,000 x RM7)
Contribution Margin 485,500
(-) Fixed Expenses:
Manufacturing overhead (13,500 x RM21) 283,500
Selling and administrative expenses 104,000 (387,500)
Net Operating Income 98,000
*800+13,500-14,000 = 300
c) Reconcile the absorption costing & variable costing net operating income.
¿ manufacturing overhead RM 283,500
Units produced
= 13,500units

= RM 21
Variable costing net operating income RM 98,000
(-) Fixed manufacturing overhead costs released from inventory (RM 10,500)
[(14,000 – 13,500) x RM21]
Absorption costing net operating income RM 87,500