PROBLEM:

PHP Units
Unit sales price 5.00 Normal Capacity 150,000
Direct Material 1.30 Beginning Inventory -
Direct Labor 1.50
Unit Variable Overhead 0.20
Unit Fixed overhead 1.00
Unit Variable expense 0.25

Units
Production 170,000
Sales 140,000

SOLUTION:
Absorption Variable
Units Unit price
Sales 140,000 5.00 700,000 700,000
COGS - Standard 140,000 3.00 420,000 420,000
Favorable FO Variance 20,000
COGS - Actual (400,000) (420,000)
Fixed Overhead 140,000 1 (140,000)
Fixed Overhead 150,000 (150,000)
Variable Expenses 140,000 0.25 (35,000) (35,000)
Fixed Expenses (65,000) (65,000)
Net Income 60,000 30,000
Difference

30,000
PROBLEM:
PHP Units
Unit sales price 5.00 Normal Capacity 150,000
Direct Material 1.30 Beginning Inventory -
Direct Labor 1.50
Unit Variable Overhead 0.20
Unit Fixed overhead 1.00
Unit Variable expense 0.25

Units
Production 170,000
Sales 140,000

SOLUTION:

Beginning Inventory - Beginning Inventory -

Production 170,000 Ending Inventory (30,000)
Total Goods Avail. for sale 170,000 Change in Inventory (30,000)
Sales (140,000) Fixed Overhead per unit 1.00
Ending Inventory 30,000 units Change in profit (30,000)
Units
Php
Php
RECONCILIATION
PHP
Absorption Costing Net Income 60,000
Add: Fixed Overhead in the Beginning Inventory 0x1 -
Less: Fixed Overhead in the Ending Inventory 30,000 x 1 (30,000)
Variable Costing Net Income 30,000

PHP
Variable Costing Net Income 30,000
Less: Fixed Overhead in the Beginning Inventory 0x1 -
Add: Fixed Overhead in the Ending Inventory 30,000 x 1 30,000
Absorption Costing Net Income 60,000