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    Jhanella Bergonio
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    This document compares variable costing and absorption costing methods. It shows that under variable costing, fixed factory overhead is excluded from the income statement, while under absorption costing it is proportionally applied to inventory and cost of goods sold. Absorption costing results in a higher production cost per unit compared to variable costing. The document also discusses how net income under each method is affected by fluctuations in sales and production volumes.

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    This document compares variable costing and absorption costing methods. It shows that under variable costing, fixed factory overhead is excluded from the income statement, while under absorption costing it is proportionally applied to inventory and cost of goods sold. Absorption costing results in a higher production cost per unit compared to variable costing. The document also discusses how net income under each method is affected by fluctuations in sales and production volumes.

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    3 views2 pages

    MAS03

    Uploaded by

    Jhanella Bergonio
    This document compares variable costing and absorption costing methods. It shows that under variable costing, fixed factory overhead is excluded from the income statement, while under absorption costing it is proportionally applied to inventory and cost of goods sold. Absorption costing results in a higher production cost per unit compared to variable costing. The document also discusses how net income under each method is affected by fluctuations in sales and production volumes.

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    of 2

    MANAGEMENT ADVISORY SERVICES

    MAS03 – VARIABLE ABSORPTION COST

    VARIABL ABSORPTION
    E COST COST
    1. TREATMENT PERIOD PERIOD COST
    ON FIXED COST [PROPORTIONA
    FACTORY [FULL L AMOUNT]
    OVERHEAD AMOUNT] Problem No. 3, pg. 2
    COST
    MANUFACTURING
    DIRECT MATERIALS ✔ ✔
    DIRECT LABOR ✔ ✔
    VARIABLE ✔ ✔
    OVERHEAD
    FIXED OVERHEAD EXCLUDE ✔
    D
    NON-MANUFACTURING COST
    SELLING & EXCLUDE EXCLUDED
    ADMINISTRATIVE D
    COST
    2. REQUIRED BY EXCLUDE ✔
    PFRS D
    3. FOCUS OF INTERNAL EXTERNAL
    REPORTING Problem No. 4, pg. 3
    4. INCOME CM/CVP TRADITIONAL
    STATEMENT S – XX S – XX V Production Cost = 100,000 – 80,000 = 20,000 units
    FORMAT VC –(XX) COGS – (XX) F
    CM- XX GP – XX 20,000 * FFOH =?
    FC (XX) OPEX – (XX) V
    F 20,000 * (180,000/100,000) =?
    OI - XX OI – XX
    5. TREATMENT IGNORED CONSIDERED 20,000 * (1.8) = 36,000
    ON VOLUME
    VARIANCE Problem No. 5, pg. 3
    6. INCOME SALES PRODUCTION
    FLUCTUATES Absorption Cost Net Income xx
    WITH
    (+) B.I. [FFOH] (Units * FFOH/UNIT) xx

    (-) E.I. [FFOH] (Units * FFOH/UNIT) 2,000


    RULES ON NET INCOME
    Variable Cost Net Income xx
    SALES > SALES < SALES =
    PRODUCTION PRODUCTION PRODUCTION 15,000 – 13,000 = 2,000
    VARIABLE VARIABLE VARIABLE
    COSTING NET COSTING NET COSTING 2,000 units * P4 = P8,000
    INCOME > INCOME < NET INCOME
    ABSORPTION ABSORPTION =
    COSTING NET COSTING NET ABSORPTION
    (P60,000/15,000 units)
    INCOME INCOME COSTING
    NET INCOME Problem No. 6, pg. 3 & No. 8, pg. 4
    BEG. INC. > BEG. INC. < BEG. INC. =
    ENDING INC. ENDING INC. ENDING INC. Variable Cost Absorption Cost
    DM 3.00 3.00
    DL 2.50 2.50
    Absorption Cost Net Income xx VOH 1.80 1.80
    (+) B.I. [FFOH] (Units * FFOH/UNIT) xx FOH - 4.00
    7.30 (#8) 11.30 (#6)
    (-) E.I. [FFOH] (Units * FFOH/UNIT) (xx)

    Variable Cost Net Income xx


    MANAGEMENT ADVISORY SERVICES

    Actual FFOH xx
    SPENDING
    Budgeted FFOH (NC*FFOH/unit) xx
    VOLUME
    Applied FFOH (AC*FFOH/unit) xx

    Problem No.7, pg. 4

    Actual FFOH P200,000 0

    Budgeted FFOH (50,000 * P4) P200,000


    P4,000 (F)
    Applied FFOH (51,000 * P4) P204,000

    Problem No.9, pg. 4

    Another way on how to solve the problem:

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