12.31.

N-1

Current Assets Current Assets

Cash 5,000
Accounts receivable 1,500
Raw Materials Inventory 258
Finished Goods Inventory 1,462
Total Current assets 8,220

Property, plant and equipment Property, plant and equipment

Land 1,200
Building and equipment 32,000
Accumulated depreciation - 5,000
Total PP&E 28,200

TOTAL ASSETS 36,420 TOTAL ASSETS

Current Liabilities Current Liabilities

Accounts Payable 1,200

Owner's Equity Owner's Equity

Retained Earnings 35,220

TOTAL LIABILITIES & OWNER'S EQUITY 36,420 TOTAL LIABILITIES & OWNER'S EQUITY
 12.31.N

Current Assets
Cash
Accounts receivable
Raw Materials Inventory
Finished Goods Inventory
Total Current assets

Property, plant and equipment

Land
Building and equipment
Accumulated depreciation
Total PP&E

TOTAL ASSETS

Current Liabilities
Accounts Payable

Owner's Equity
Retained Earnings

TOTAL LIABILITIES & OWNER'S EQUITY

 1 2 3 4 Year

Units 1,000 1,200 1,500 2,000 5,700

Unit Selling Price 10.00 10.00 10.00 10.00 10.00

Budgeted Sales ($) 10,000 12,000 15,000 20,000 57,000

 1 2 3 4

Budgeted Sales 1,000 1,200 1,500 2,000

Desired ending inventory 240 300 400 240

Total needs 1,240 1,500 1,900 2,240

Less : beginning inventory 200 240 300 400

Units to be produced 1,040 1,260 1,600 1,840

Year

5,700

240

5,940

200

5,740
Plain t-shirts 4 (N-1) 1 2 3 4 Year

Units to be produced 1,040 1,260 1,600 1,840 5,740

Direct materials per unit 1 1 1 1 1

Production needs 1,040 1,260 1,600 1,840 5,740

Desired ending inventory 126 160 184 110 110

Total needs 1,166 1,420 1,784 1,950 5,850

Less : beginning inventory 60 126 160 184 60

Direct materials to be purchased 1,106 1,294 1,624 1,766 5,790

Unit cost (in $) 3 3 3 3 3

Total Purchase cost plain t-shirts (in $) 3,318 3,882 4,872 5,298 17,370

Ink 4 (N-1) 1 2 3 4 Year

Units to be produced 1,040 1,260 1,600 1,840 5,740

Direct materials per unit 5 5 5 5 5

Production needs 5,200 6,300 8,000 9,200 28,700

Desired ending inventory 630 800 920 530 530

Total needs 5,830 7,100 8,920 9,730 29,230

Less : beginning inventory 390 630 800 920 390

Direct materials to be purchased 5,440 6,470 8,120 8,810 28,840

Unit cost 0.20 0.20 0.20 0.20 0.20

Total Purchase cost ink (in $) 5,440 6,470 8,120 8,810 28,840

TOTAL DIRECT MATERIALS PURCHASE COST (in$) 8,758 10,352 12,992 14,108 46,210
Variable overhead rate

1 2 3 4

Budgeted direct labour hours

Variable overhead rate

Budgeted variable overhead

Budgeted fixed overhead

Total overhead
Year
Direct labour time per unit (in h.)
Average wage per hour (in $)

1 2 3 4

Units to be produced 1,040 1,260 1,600 1,840

Direct labour time per unit 0.12 0.12 0.12 0.12

Total labour hours needed 124.8 151.2 192.0 220.8

Average wage per hour 12 12 12 12

Total labour hours for salary paying 160.0 160.0 192.0 220.8

Total DL cost paid to workers 1,920.0 1,920.0 2,496.0 3,014.4

DL cost 1,497.6 1,814.4 2,304.0 2,649.6

DL considered as fixed overhead 422.4 105.6 192.0 364.8

Year

5,740

0.12

688.8

12

732.8

9,350.4

8,265.6

1,084.8
Unit cost computation

Direct material
Plain t-shirt
Ink

Direct Labour

Overhead
Variable
Fixed Rate

Total unit cost

Finished goods : printed t-shirts

Unit cost
Ending FG inventory
= Budgeted fixed overhead / Budgeted direct labour hours
Variable S&A exp. Per unit

1 2 3 4 Year

Planned sales in units

Variable S&A exp. Per unit

Total variable expenses

Fixed S&A expenses

Salaries
Utilities
Advertising
Depreciation
Insurance
Total Fixed expenses

Total S&A expenses

Corporate tax rate

Absorption costing Variable costing

in $
Sales variable expense per unit

less : COG sold Sales

Gross Margin Variable expense

+ Variable expense of product
S&A expenses + Variable expense from S&A expense
Contribution margin
Operating Profit
fixed expense
less : financial expenses
+ Manufacturing overhead fixed expense
Income before tax
+ S&A fixed expense
less : income tax
Income before interest & tax
Net income

Income before Interest & Tax

EBIT Variance between Absorption & Variable Costing -

Why is there a difference ?

 in $

nse of product
nse from S&A expense

g overhead fixed expense

interest & tax

Sales Purchases

Cash sales 25% Cash purchases 0%

Credit sales 75% Credit purchases 100%
Same Quarter 90% Same quarter 80%
Following Q. 10% Prior quarter 20%
Sales from prior Q. 20,000 Purchases from Q.4 LY 6,000

1 2 3 4

Begining cash

Collections
Cash sales
Credit sales
Current quarter
Prior quarter
Total cash available

Less disbursements
Raw materials
Current quarter
Prior quarter
Direct labour
Overhead
S&A
Income taxes
Equipment
Total disbursements

Minimum cash balance

Total cash needs

Excess (deficiency) of cash

Financing
Borrowings
Repayments
Interest
Total financing

Ending cash balance

 Depreciations Income Tax 40%

Overhead 550 Equipment 7,000

S&A 200

Minimum cash balance 2,000 Interest rate 15%

Year