ANTONIA GARDEAZABAL - 201922311

MARIANNE NICHOLLS - 202014606

ALEJANDRO SÁNCHEZ -201716961
ANDREA TORRES - 201730521
VARIABLE COSTING VERSUS ABSORPTION COSTING

Data: production and inventory Period 1

Planned production (units) 25,000

Finished product inventory (1 Jan) 0

Actual production (units) 25,000

Sales (units) 25,000

Finished product inventory (31 Dec) 0

Revenues and costs data

Unit price 48

Variable costs of manufacturing

Direct materials 12

Direct labor 8

Other variable manufacturing 4

Total variable unit costs of manufacturing vp 24

 TOTAL VARIABLE COST 600,000

DATA FOR ABSORPTION COSTING

Fixed direct costs of manufacturing

Yearly fixed costs of manufacturing 300,000

Fixed manufacturing cost per unit 12.0

Unit absorption cost 36.0

OVERHEAD

Variable administrative and sales 4

Yearly administrative and sales fixed 50,000

Income statement - absorption costing

Revenues 1,200,000

Cost of goods sold 900,000

Gross profit 300,000

Administrative and sales fixed 50,000

Variable adm & sales 100,000

EBIT 150,000
OSTING

Period 2 Period 3

25,000 25,000

0 2,500

25,000 25,000

22,500 27,500

2,500 0

46.5 48

12 12

8 8

4.4 4.4

24.4 24.4
 610,000 610,000

282,510 282,510

11.3 11.3

35.7 35.7

5 4.5

43,000 43,000

1,046,250 1,320,000

803,259 981,761

242,991 338,239

43,000 43,000

112,500 123,750
87,491 171,489
 VARIABLE VS. ABSORPTION

Data: production and inventory Period 1

Planned production (units) 25,000

Finished product inventory (1 Jan) 0

Actual production (units) 25,000

Sales (units) 25,000

Finished product inventory (31 Dec) 0

Revenues and costs data

Unit price 48
Variable costs of manufacturing

Direct materials 12

Direct labor 8

Other variable manufacturing 4

Total variable unit costs of manufacturing 24

 Total variable costs 600,000

OTHER DATA

Fixed manufacturing costs

Yearlyfixed manufacturing costs 300,000

Fixed manufacturing cost per unit 12.0

Unit absorption cost 36.0

OVERHEAD

Unit variable administrative and sales

expense: vO 4

Administrative and sales fixed costs 50,000

Income statement - variable costing

Revenues 1,200,000

Total variable costs 700,000

Margin of contribution 500,000

Total fixed costs 350,000

EBIT 150,000
Period 2 Period 3 INDICATORS

25,000 25,000
GAO - DOL

0 2,500

25,000 25,000
Q0 (Units)

22,500 27,500

2,500 0 Break Even Point ($)

Margin of Contribution on sales

46.5 48
MS

12 12

8 8

4.4 4.4

24.4 24.4
Variable Costing
 610,000 610,000
EBIT

Va
250000

200000

150000
282,510 282,510 150000

100000
11.3 11.3
50000

0
35.7 35.7
P

5 4.5

43,000 43,000

1,046,250 1,320,000

661,500 794,750

384,750 525,250

325,510 325,510

59,240 199,740
 PERIOD 1 PERIOD 2 PERIOD 3

A high degree of operating leverage indic

in its earnings with a change in its sales b
total costs. As seen in the results, the se
3.333333333333 6.4947670493 2.6296685691
recession and the changes made by the c
the first one because the changes made i
and th

The low breakeven point in the 2nd perio

$1,5 forcing them to sell more, meanwhi
price increase again $1,5. That means t
14,583 14,729 13,793
whereas a high breakeven point in the 1
need to be sold to reach that point. A low
and more room to maneuver in terms of

700,000 684,897 662,054

350,000 325,510 325,510

The margin of safety indicates the amoun
41.67% 34.54% 49.84% the company will have no profit. Higher
whereas lower the Margin of Safety, gre
the risk is higher because of the changes
hand for the 3rd period it is aproximately
shown by the incr

Period 1 Period 2 Period 3 Absorption Costin

 150000 59240 199740 EBIT

Variable costing /EBIT Absorption Co

200000
180000
199740
160000 150000
140000
150000 120000
100000 8
80000
60000
59240
40000
20000
0
E
EBIT
Period 1 Perio
Period 1 Period 2 Period 3
 erating leverage indicates that a company is likely to experience volatility
a change in its sales because it has a large proportion of fixed costs in its
en in the results, the second period has a higher risk due to the economic
hanges made by the company. In the third period the risk is lower than in
se the changes made in the second period where maintained but the sales
and the price increased.

n point in the 2nd period is higher because the unit sale price decreased in
o sell more, meanwhile in 3rd period the break point is lower because the
ain $1,5. That means that the business will start making a profit sooner,
eakeven point in the 1st and 2nd period means more products or services
each that point. A lower break-even point leads to more profit, more cash
maneuver in terms of product development, new investments and R&D.

ty indicates the amount by which a company's sales could decrease before

have no profit. Higher the Margin of Safety, lower the risk of making loss
Margin of Safety, greater the risk of doing business. For the 2nd period,
ecause of the changes made due to the economic recession, on the o ther
eriod it is aproximately 50%, meaning that the increase of 15% percent is
shown by the increase of unit price and sales.

Period 1 Period 2 Period 3

 150000 87491 171489

Absorption Costing/ EBIT

171489
150000

87491

EBIT

Period 1 Period 2 Period 3