VARIABLE AND ABSORPTION COSTING

EXERCISES

INSTRUCTIONS: Write your solution on a clean sheet of paper. Your answer sheet shall have two parts.
The first part shall be the upper portion of your paper. You are required to enumerate your final
answers to the questions on this part. The second part shall be below the 1 st part. This is where you are
going to write your solutions.

1. Genco Inc. makes a single product that sells for P50. The standard variable manufacturing cost is
P32.50 and the standard fixed manufacturing cost is P7.50, based on producing 20,000 units.
During the year Genco produced 22,000 units and sold 21,000 units. Actual fixed manufacturing
costs were P157,000; actual variable manufacturing costs were P735,000. Selling and
administrative expenses, all fixed, were P75,000. There were no beginning inventories.

a. What is the net income under the standard absorption costing income statement?
b. What is the net income under the standard variable costing income statement?

2. Hayden Corp. has the following data:

Normal capacity 40,000

Practical capacity 45,000
Budgeted production 30,000
Actual production 35,000
Actual sales (P20 per unit) 32,000
Standard variable production cost per unit P12
Budgeted fixed production costs P135,000

There were no variable cost variances for the year. Fixed costs incurred were equal to the budgeted
amount. There were no beginning inventories and no selling or administrative expenses.

a. Compute the absorption costing income if fixed costs per unit are determined using normal
capacity.
b. Compute the absorption costing income if fixed costs per unit are determined using practical
capacity.
c. Compute the absorption costing income if fixed costs per unit are determined using
budgeted production.
d. Compute the variable costing income.

3.The following data relate to Hunter, Inc., a new company:

Planned and actual production 200,000 units

Sales at P48 per unit 170,000 units
Manufacturing costs:
Variable P18 per unit
Fixed P840,000
Selling and administrative costs:
Variable P7 per unit
Fixed P925,000
 There were no variances during the period.

Required:
a. Determine the number of units in the ending finished-goods inventory.
b. Calculate the cost of the ending finished-goods inventory under (1) variable costing and (2)
absorption costing.
c. Determine the company's variable-costing net income.
d. Determine the company's absorption-costing net income.

4.Outdoors Company manufactures sleeping bags that sell for P30 each. The variable standard costs
of production are P19.50. Budgeted fixed manufacturing overhead is P100,000, and budgeted
production is 10,000 sleeping bags. The company actually manufactured 12,500 bags, of which
11,000 were sold. There were no variances during the year except for the fixed-overhead
volume variance. Variable selling and administrative costs are P0.50 per sleeping bag sold; fixed
selling and administrative costs are P5,000.

Required:
a. Calculate the standard product cost per sleeping bag under absorption costing and
variable costing.
b. Compute the fixed-overhead volume variance.
c. What is the net income for the year using absorption costing?
d. What is the net income for the year using variable costing?

5.Phinisee Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

Variable costing net operating income, last year.................... P82,700

Variable costing net operating income, this year................... P87,800
Increase in ending inventory, last year................................... 900
Decrease in ending inventory, this year.................................. 3,100
Fixed manufacturing overhead cost per unit.......................... P2

Required:

a. Determine the absorption costing net operating income for last year. Show your work!
b. Determine the absorption costing net operating income for this year. Show your work!