PRODUCT COSTING AND SEGMENT REPORTING

A. Black Co.’s 2019 fixed manufacturing overhead costs totaled P100,000 and variable selling costs totaled
P80,000. Under direct costing, how should these costs be classified?

B. For P1,000 per box, Gray Inc. produces and sells delicacies. Direct materials are P400 per box and direct
manufacturing labor averages P75 per box. Variable overhead is P25 per box and fixed overhead cost is
P12,500,000 per year. Administrative expenses, all fixed, run P4,500,000 per year, with sales
commissions of P100 per box. Production is expected to be 100,000 boxes which is met every year. For
the year just ended, 75,000 boxes were sold.

1. What is the inventoriable cost per box using absorption costing?

2. What is the inventoriable cost per box using variable costing?

C. White Company manufactures a single product and has the following cost structure:
Variable cost per unit:
Direct materials P 3
Direct labor 4
Variable manufacturing overhead 1
Variable selling and administrative expense 2
Fixed costs per month:
Fixed manufacturing overhead P 100,000
Fixed selling and administrative expense 60,000
The company produces 20,000 units each month.

3. What is the unit product cost under absorption costing?

4. What is the unit product cost under variable costing?
5. Assuming there are no beginning inventories and P20,000 units are produced and P19,000 units are
sold in a month. If the unit selling price is P20, what is the profit under absorption costing for the
month?
6. Assuming there are no beginning inventories and P20,000 units are produced and P19,000 units are
sold in a month. If the unit selling price is P20, what is the profit under variable costing for the
month?

D. Last year, Magenta Company produced 10,000 units and sold 9,000 units. Fixed manufacturing
overhead costs were P20,000, and variable manufacturing overhead costs were P3 per unit. For the year,
one would expect net income under the absorption costing to be ________________ the net income
under variable costing method.

E. Green company has operating income of P50,000 using direct costing for a given period. Beginning and
ending inventories for that period were P13,000 units and P18,000 units, respectively. If the fixed
factory overhead application rate is P2 per unit, what is the operating income using the absorption
costing?
F. Pink Co. had a net income of P85,500 using variable costing and net income of P90,000 using
absorption coting. Total fixed manufacturing overhead cost was P150,000, and production was 100,000
units. Between the beginning and end of the year, how did the inventory level change?

G. From the following data, prepare a segmental income statement for ABC Company for year 2020.

Total Division 1 Division 2

₱ ₱ ₱
Sales 1,000,000.00 600,000.00 400,000.00
Variable costs:
₱ ₱
Manufacturing costs ₱ 420,000.00 220,000.00 200,000.00
Selling and administrative costs ₱ 140,000.00 ₱ 70,000.00 ₱ 70,000.00
Fixed costs:
₱ ₱
Controllable by division manager ₱ 250,000.00 130,000.00 120,000.00
Controllable by others ₱ 120,000.00 ₱ 70,000.00 ₱ 50,000.00
Unallocated fixed costs
Manufacturing costs ₱ 40,000.00
Selling and administrative costs ₱ 20,000.00