XCOSTMAN

Prelim Assignment 1 to be submitted on Monday, January 22, 2024.

➢ On your YELLOW SHEETS, show your computations in good form. Use the front page only.
➢ Use PERMANENT ink only. The use of erasable ink is prohibited.
➢ ERASURES in any form is also PROHIBITED.
➢ Round off to four (4) decimal places, otherwise stated.

Problem I - Direct Costing Income Statements. Dyesabel Products presents the following data from absorption
costing income statements for the last two years:

2023 2024
Sales .................................................................................................................. P2,000,000 P2,500,000
Cost of goods sold (at standard) .......................................................................... 800,000 950,000
Over- or underapplied overhead .......................................................................... 25,000 (25,000)
Marketing and general expense ........................................................................... 500,000 550,000
Operating income ............................................................................................... 675,000 1,050,000

Required: Prepare the direct costing income statements for each year, assuming that there were no changes in
capacity between years and that the unit variable costs are constant. (Hint: Use the high- and low-points method to
determine the fixed and variable portions of each cost element.)

Problem II - Absorption Costing Income Statement. Darna Products Co. manufactures restaurant equipment. The
direct costing income statement for last year is given below:

Sales ................................................................................................................................................. P 370,000

Less:
Variable manufacturing cost ....................................................................................................... 98,000
Variable marketing and general expenses .................................................................................... 64,000
Contribution margin .......................................................................................................................... P 208,000
Less:
Fixed manufacturing cost............................................................................................................ 50,000
Fixed marketing and general expenses ........................................................................................ 70,000
Operating income .............................................................................................................................. P 88,000

The variable and fixed costs in inventories for last year were:

Beginning Ending
Inventory Inventory
Work in process:
Variable cost ..................................................................................................... P 6,000 P 9,000
Fixed cost .......................................................................................................... 8,000 10,000
Total ............................................................................................................ P 14,000 P 19,000

Finished goods:
Variable cost ..................................................................................................... P 26,000 P 20,000
Fixed cost .......................................................................................................... 16,000 8,000
Total ............................................................................................................ P 42,000 P 28,000

There were no cost variances.

Required: Prepare an absorption costing income statement for last year, including inventory details.
Problem III - Actual costs for Lastikman, Inc. for the past year were as follows:

Direct material (2 pounds @ P5) P10 per unit

Direct labor (3 hours @ P10) P30 per unit
Variable selling and administrative P2 per unit
Fixed selling and administrative P80,000

During the year, 10,000 units were produced and 9,000 units were sold. There were no beginning
inventories. Thirty thousand direct labor hours were worked during the year. Actual overhead for the year
totaled P252,000 of which P140,000 was fixed. Selling price = P100/unit.

Budgeted fixed overhead was P150,000 and the expected activity level was 30,000 direct labor hours.
Variable overhead was budgeted at 3 direct labor hours per unit and P4 per direct labor hour.

The company uses a normal costing system and overhead variances are closed to cost of goods sold.

Required:
a. Determine the unit cost using variable costing.
b. Determine the unit cost using absorption costing.
c. Using variable costing, determine the contribution margin, and variable costing income.
d. Using absorption costing, determine the gross margin, and absorption costing income.

Problem IV- Panday Corp. produces a single product. The following is a cost structure applied to its first year of
operations, 2024:

Sales price P15 per unit

Variable costs:
SG&A P2 per unit
Production P4 per unit
Fixed costs (total cost incurred for the year):
SG&A P14,000
Production P20,000

During 2024, Panday Corp. manufactured 5,000 units and sold 3,800. There was no beginning or ending
work-in-process inventory.

a. How much income before income taxes would be reported if Panday uses absorption costing?
b. How much income before income taxes would be reported if variable costing was used?
c. Show why the two costing methods give different income amounts.

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