CMA PART1 TUESDAY 25/4/23 GMSISUCCESS

TOTAL COST = DIRECT COST + INDIRECT COSTS

OR TOTAL COST = VARIABLE COST+ FIXED COSTS
INVENTORIABLE COST= COST OF GOODS SOLD(COGS)> CHARGE TO
CUSTOMERS.
WHEREAS PERIOD COSTS =EXPENSES , NOT CHARGED TO CUSTOMER
ABSORPTION COSTING >>>>INVENTORIABLE COST= DIRECT MATERIAL
+DIRECT WAGES + VARIABLE MFG OVERHEADS + FIXED MFG OH

VARIABLE COSTING>>>> INVENTORIABLE

COST=DIRECT MATERIAL+ DIRECT WAGES+ VARIABLE
MFG OH

ILLUSTRATION 1: A LTD GIVES FOLLOWING DATA ,

COMPUTE INVENTIABLE COST AS PER ABSORPTION
COSTING/FULL COSTING & ALSO BY DIRECT
COSTING/VARIABLE COSTING
RAW MATERIAL COST 1,00,000$, DIRECT WAGES
20,000, DIRECT EXPS 10,000, POWER & FUEL
20,000(VARIABLE). FACTORY RENT 10,000, WORK
SUPERVISOR’S SALARY 30,000, REPAIRES& MAINT
20,000(50% VARIABLE), OFFICE RENT 10,000,
SALEMAN COMMISSION 10,000(VARIABLE), FACTORY
LIGHTING 5000(FIXED)
INVENTORIABLE COST AS PER ABSORPTION COSTING:
PARTICULARS AMOUNT$
DIRECT COSTS(PRIME COST):
RAW MATERIAL 1,00,000
DIR WAGES 20,000
DIR EXPS 10,000 1,30,000
MFG OVERHEADS:
VARIABLE MFG OH:
POWER& FUEL 20,000
REP & MAINT50%VAR10,000 30,000

FIXED MFG OH:

FACTORY RENT 10,000
WORK SUPERVISOR SALARY 30,000
REP & MAINT 50%FIX 10,000
FACTORY LIGHTING 5,000 55,000
TOTAL INVENTORIABLE COSTS 2,15,000

NOTE: OFFICE RENT , SALESMAN COMM ARE NON MFG OVERHEADS SO THEY
ARE NOT PART OF INVENTORIABLE COSTS AS PER ABSORPTION COSTING.

INVENTORIABLE COST AS PER VARIABLE COSTING:

PARTICULARS AMOUNT$
DIRECT COSTS(PRIME COST):
RAW MATERIAL 1,00,000
DIR WAGES 20,000
DIR EXPS 10,000 1,30,000
MFG OVERHEADS:
VARIABLE MFG OH:
POWER& FUEL 20,000
REP & MAINT50%VAR10,000 30,000
TOTAL INVENTORIABLE COSTS 1,60,000
NOTE: FIXED MFG OH, NON MFG OH(OFFICE, ADMIN,
SELLING,DISTRIBUTION OH ARE NOT PART OF
INVENTORIABLE COSTS AS PER VARIABLE COSTING/DIRECT
COSTING)

WHAT IS ABSORPTION COST?

ABSORPTION COSTS PER UNIT= MATERIAL COST
PU+DIRECT WAGES PU+ VARIABLE MFG OH PU+ FIXED
MFG OH PU(OVERHEAD ABSORPTION RATE )
OVERHEAD ABSORPTION RATE( OAR)=
BUDGETED/ESIMATED FIX MFG OH $ /BUDGETED
PRODUCTION QTTY
VARIABLE MFG COST PU= DIRECT MATERIAL COST PU+
DIR WAGES PU+VAR MFG OH PU
ILLUSTRATION: A LTD GIVES FOLLOWING DATA , ASK YOU TO PREPARE
INCOME STATEMENT AS PER ABSORPTION COSTING , ALSO BY DIRECT
COSTING:
BUDGETED FIXED MFG OH 100,000$, BUDGETED PRODUCTION 50,000 UNITS
MATERIAL COST 10$ PU, D WAGES 5$ PU, VARIABLE MFG OH 3$ PU.
FIXED MFG OH INCURRED (ACTUAL)= 90,000$
BUDGETED/ACTUAL OFFICE,ADMN &DISTR OH =30,000$
OP INVENTORY 10,000 UNITS, CURRENT PRODUCTION 60,000 UNITS, SALES
QTTY 50,000 SELLING PRICE 30$ PU.

ANSWER : 1 CALCULATE OAR= OVERHEAD ABSORPTION RATE( OAR)=

BUDGETED/ESIMATED FIX MFG OH $ /BUDGETED PRODUCTION QTTY
=100,000$/ 50,000 UNITS= 2$ PER UNIT
2. ABSORPTION COSTS PER UNIT= MATERIAL COST 10$ PU+DIRECT WAGES
5$PU+ VARIABLE MFG OH 3$ PU+ OVERHEAD ABSORPTION RATE 2$
PU=10+5+3+2=20$ PU
*CL INVENTORY= FG AVAIL FOR SALES(OP INV+CURR PRODUCTION QTY (-)
SALE QTTY= 10,000+60,000 =70,000 (-)50,000=20,000
VARIABLE(MFG) COST PER UNIT=MATERIAL10$+WAGES5$+VAR MFG
OH3$=10+5+3=18$ PU

INCOME STATEMENT AS PER ABSORPTION COSTING :

PARTICULARS AMT$ AMT$
SALES (50,000UNITS@30$) 15,00,000
LESS: COST OF GOOD SOLD(COGS):
OP INVENTORY (10,000@20$) 2,00,000
+PRODUCTION COST(60,000*20) 12,00,000
=COST OF FINISHED GOODS AVAIABLE FOR SALE 1400,000
(-) CL INVENTORY* (20,000*20$) (400,000) (10,00,000)
GROSS MARGIN/GROSS PROFIT 5,00,000
LESS: NON PRODUCTION OH:
ADMIN,DISTRE OVERHEADS (30,000)
PROFIT 4,70,000

INCOME STATEMENT AS PER VARIABLE COSTING :

PARTICULARS AMT$ AMT$
SALES (50,000UNITS@30$) 15,00,000
LESS: COST OF GOOD SOLD(COGS):@18$
OP INVENTORY (10,000@18$) 1,80,000
+PRODUCTION COST(60,000*18) 10,80,000
=COST OF FINISHED GOODS AVAIABLE FOR SALE 12,60,000
(-) CL INVENTORY* (20,000*18$) (3,60,000) (9,00,000)
CONTRIBUTION MARGIN 6,00,000
LESS: FIXED OVERHEADS :
FIX MFG OH 90,000
FIX ADMIN,DISTRE OVERHEADS 30,000 (1,20,000)
PROFIT 4,80,000

ILLUSTRATION2: B LTD GIVES FOLLOWING DATA , ASK YOU TO PREPARE

INCOME STATEMENT AS PER ABSORPTION COSTING , ALSO BY DIRECT
COSTING:
BUDGETED FIXED MFG OH 100,000$, BUDGETED PRODUCTION 100,000 UNITS
MATERIAL COST 5$ PU, D WAGES 3$ PU, VARIABLE MFG OH 2$ PU.
FIXED MFG OH INCURRED (ACTUAL)= 105,000$
BUDGETED/ACTUAL OFFICE ,ADMN OH =10,000$
BUDGETED /ACTUAL DISTR OH = 30,000$
OP INVENTORY 20,000 UNITS, CURRENT PRODUCTION 90,000 UNITS,CL
INVENTORY 30,000 UNITS , SALES QTTY ? SELLING PRICE 30$ PU.
ANSWER 1 CALCULATE OAR= OVERHEAD ABSORPTION RATE( OAR)=
BUDGETED FIX MFG OH $ /BUDGETED PRODUCTION QTTY
=100,000$/ 1,00,000 UNITS= 1$ PER UNIT
2. ABSORPTION COSTS PER UNIT= MATERIAL COST 5$ PU+DIRECT WAGES
3$PU+ VARIABLE MFG OH 2$ PU+ OVERHEAD ABSORPTION RATE 1$
PU=5+3+2+1=11$ PU
3 SALES QTTY= FG AVAIABLE FOR SALES – CL INVENTORY=OP INV+CURR
PRODUCTION QTY – CL INV=20,000+90,000-30,000=1,10,000-30,000=80,000
4 VARIABLE MFG COST PU= MATERAIL+WAGES+VAR MFG OH=5+3+2=10$PU
INCOME STATEMENT AS PER ABSORPTION COSTING :
PARTICULARS AMT$ AMT$
SALES (80,000UNITS@30$) 24,00,000
LESS: COST OF GOOD SOLD(COGS):
OP INVENTORY (20,000@11$) 2,20,000
+PRODUCTION COST(90,000*11) 9,90,000
=COST OF FINISHED GOODS AVAIABLE FOR SALE 12,10,000
(-) CL INVENTORY* (30,000*11$) (3,30,000) (8,80,000)
GROSS MARGIN/GROSS PROFIT 15,20,000
LESS: NON PRODUCTION OH:
ADMIN OVERHEADS 10,000
DISTR OVERHEADS 30,000 (40,000)
PROFIT 14,80,000
INCOME STATEMENT AS PER VARIABLE COSTING :
PARTICULARS AMT$ AMT$
SALES (80,000UNITS@30$) 24,00,000
LESS: COST OF GOOD SOLD(COGS):@10$
OP INVENTORY (20,000@10$) 2,00,000
+PRODUCTION COST(90,000*10) 9,00,0000
=COST OF FINISHED GOODS AVAIABLE FOR SALE 11,00,000
(-) CL INVENTORY* (30,000*10$) (3,00,000) (8,00,000)
CONTRIBUTION MARGIN 16,00,000
LESS: FIXED OVERHEADS :
FIX MFG OH 1,05,000
FIX ADMIN, OVERHEADS 10,000
FIX DISTR OH 30,000 (1,45,000)
PROFIT 14,55,000

STUDENTS ASSIGNMENTS: PL SOLVE

ILLUSTRATION: C LTD GIVES FOLLOWING DATA , ASK YOU TO PREPARE
INCOME STATEMENT AS PER ABSORPTION COSTING , ALSO BY DIRECT
COSTING:
BUDGETED FIXED MFG OH 10,000$, BUDGETED PRODUCTION 20,000 UNITS
MATERIAL COST 8$ PU, D WAGES 2$ PU, VARIABLE MFG OH 2$ PU.
FIXED MFG OH INCURRED (ACTUAL)= 15,000$
BUDGETED/ACTUAL OFFICE ,ADMN OH =10,000$
BUDGETED /ACTUAL DISTR OH = 5,000$
OP INVENTORY 2,000 UNITS, CURRENT PRODUCTION 25,000 UNITS,CL
INVENTORY 3,000 UNITS , SALES QTTY ? SELLING PRICE 20$ PU.
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