Elaborate activity:

Evaluate: STRAIGHT PROBLEMS(SHOW SOLUTIONS IN GOOD ACCOUNTING FORM)

1. ABC Products, Inc. planned and actually manufactured 200,000 units of its single product in 2000,
its first year of operations. Variable manufacturing costs were P30 per unit of product. Planned
and actual fixed manufacturing costs were P600,000, and marketing and administrative costs
totaled P400,000 in 2000. ABC sold 120,000 units of product in 2000 at a selling price of P40 per
unit. What is the cost of the ending inventory assuming variable costing is used?

2. ABC Company completed its first year of operations during which time the following information
were generated:
Total units produced
Total units sold @ P100 per unit 80,000
Work in process ending inventory 20,000
Costs Variable Cost per Unit Fixed Costs
Raw materials P20.00 12.50 7.50
Direct labor 10.00
Factory overhead P1.2 million
Selling and administrative 0.7 million

If the company used variable (direct) costing method, the operating income would be 100,000

3. ABC, Inc. manufactured 700 units of Product A, a new product, during the year. Product A’s
variable and fixed manufacturing costs per unit were P6.00 and P2.00 respectively. The inventory
of Product A on December 31, consisted of 100 units. There was no inventory of Product A on
January 1. What would be the change in the Peso amount of inventory on December 31 if
variable costing were used instead of absorption costing?

4. GHI Company had P100,000 income using absorption costing. GHI has no variable
manufacturing costs. Beginning inventory was P5,000 and ending inventory was P12,000. What
is the income under variable costing?
A. P100,000. B. P107,000 C. P88,000 D. P93,000

5. ABC Manufactures a single product for which the costs and selling prices are:

Variable production costs P 50 per unit

Selling price¶ P125 per unit
Fixed production overhead P200,000 per quarter
Fixed selling and administrative overhead P80,000 per quarter
Normal capacity 20,000 units per quarter
 Production in first quarter was 19,000 units and sales volume was 16,000
units. No opening inventory for the quarter. What was the absorption costing
profit for the quarter?

6. Youthful Biscuits manufactures and sells boxed coconut cookies. The

biggest market for these cookies are as gifts that college students buy for
their business teachers. There are 100 cookies per box. The following income
statement shows the result of the first year of operations. This
statement was the one included in the company’s annual report to the stockholders.
Sales (400 boxes at P12.50 a box) 5,000.00
Less: Cost of goods sold (400 boxes at P8 per box) 3,200.00
Gross margin 1,800.00
Less: Selling and administrative expenses 800.00
Net income 1,000.00
Variable selling and administrative expenses are P0.90 per box sold.
The company produced 500 boxes during the year.
Variable manufacturing costs are P5.25 per box and fixed
manufacturing overhead costs total P1,375 for the year.
What is the company’s direct costing net income?

7. A company has the following cost data:

Fixed manufacturing costs P2,000
Fixed selling, general, and administrative costs 1,000
Variable selling costs per unit sold 1
Variable manufacturing costs per unit 2
Beginning inventory
0 units
Production 100 units
Sales 90units at P40 per unit
What are the Variable and absorption-cost net incomes

Questions 8 through 10 are based on the following information.

The following information is available for ABC Co. for its first year of operations:
Sales in units 5,000
Production in units 8,000
Manufacturing costs:
Direct labor P3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
Fixed overhead P100,000
Net income (absorption method) P30,000
Sales price per unit P40

8. What would ABC Co. have reported as its income before income taxes if it
had used variable costing?

9. What was the total amount of SG&A expense incurred by ABC Co.?

10. Based on variable costing, what would ABC Co. show as the value of its ending inventory?