Problem 1

The records of TAN Company pertaining to 2014 operations showed the following
information:
Units sold 2,000
Units produced 2,200
Fixed manufacturing overhead P 44,000
Variable manufacturing overhead 12,000
Fixed selling and administrative expenses 18,000
Variable selling and administrative expense 10,000
Direct materials used 30,000
Direct labor 24,000
Inventory, beginning in units 100
No work-in process inventories

REQUIRED: Compute for the Ending Finished Goods Inventory under:

a. Absorption Costing method b. Variable Costing method
Problem 2
TAN Company presented the following data for 2014:
Sales P 256,000
Variable manufacturing costs 96,000
Fixed manufacturing costs 64,000
Fixed selling and administrative expenses 80,000
Actual production in units 10,000
Finished goods, end in units 2,000
Finished goods, beg. in units None

REQUIRED: Prepare an Income Statement for 2014 using the data above under:
a. Direct costing system b. Absorption costing system.
Problem 3
The following data were taken from the records of ARAB Company for the years
ending December 31, 2013 and 2014.
In Units 2013 2014
Inventory, Jan. 1 -0- 7,000
Production 20,000 18,000
Available for sale 20,000 25,000
Units sold 13,000 23,000
Inventory, Dec. 31 _7,000 _2,000

Sales (P20 per unit) P260,000 P460,000

Variable Manufacturing Cost (P7.50/Unit) 150,000 135,000
Fixed Manufacturing Cost 50,000 54,000
Selling and Administrative 45,000 75,000
Selling and administrative expenses are 60% fixed and 40% variable.
REQUIRED: Prepare the Comparative Income Statements for 2013 and 2014 using
a. Variable costing b. Absorption costing, and c. Reconcile the net income difference
Problem 4
The Vic Full Company presented the following data for 2013 and 2014:
Standard Costs per unit: Production and Sales-units:
Direct materials P 13.00 2003 Production 17,000
Direct labor 10.00 2003 Sales 14,000
Variable factory overhead 2.00 2004 Production 14,000
Variable cost per unit 25.00 2004 Sales 16,000

There was no 2013 Inventory, Beginning. The expected normal production each year
is 15,000 units. Total fixed manufacturing overhead each year are P120, 000. Units
produced are expected to be sold at 45.00 each.
Fixed selling and administrative expenses are budgeted at P65, 000 yearly while
variable selling and administrative expenses are expected to be 10% of sales.
REQUIRED:
1. Prepare income statements for the years ended December 31, 2013 and 2014 under:
a. Direct Costing method b. Absorption Costing method

2. Reconcile the difference in Net Income for 2013 and 2014, and the two years as a
whole.
1. The Wood Company is considering changing its method of inventory valuation from
absorption to direct costing and engaged you to determine the effect of the proposed
change on the 2014 financial statements. The company produce product Dennis, which is
sold for P20/unit. Tan is added before processing starts and labor and overhead are added
evenly during the manufacturing process. Production capacity is budgeted at 100,000 units
of Dennis annually. The standard costs/unit of Dennis are:
 Tan, 2 kilos @ P3
 Labor @ P6
 Variable mfg. overhead @ P1
 Fixed Mfg. overhead P1.10
A process cost system is used employing standard costs. Variances from standard costs are
now charged or credited to cost of goods sold. If direct costing were adopted only variances
resulting from variable costs would be charged or credited to cost of goods sold. Inventory
data for 2014 follows:
 Finished goods in units 20,000 (Jan. 1) 12,000 (Dec. 31)
 Transferred to finished goods during 2014, 110,000 units
Actual fixed manufacturing overhead during the year was P121, 000. There were no
variances between standard variable costs and actual variable costs during the year. There
were no work-in-process in the beginning and end of the period.
REQUIRED:
1. Schedule of standard unit costs under direct and absorption costing
2. Comparative statements of costs of goods sold using direct costing and absorption
costing.

3. The management of RUEY SHING Company uses the following unit costs for the one
product it manufactures:
Projected cost/unit
 Direct materials P30
 Direct labor 19
 Variable overhead 6
 Fixed overhead (based on 10,000 units/month) 5
 Variable selling and administrative 4
 Fixed selling and administrative (based on 10,000 units/month) 2.80
The projected selling price is P80/unit. The fixed costs remain fixed within the relevant
range of 4,000 to 16,000 units of production. Management has also projected the
following data for June 2014: (units)

 Beginning inventory 2,000

 Production 9,000
 Sales 7,500
REQUIRED: Prepare projected income statements for June, 2014 for management purposes
under each of the following product costing methods:
1. Absorption costing with all variances charged to cost of goods sold each month.
2. Variable costing
3. Supporting schedules calculating inventorial production costs/unit. Ignore income taxes

4. Felix Manalo, manager of The Burger House, asked for your advice as a management
accountant about product costs. Manalo wants you to compute the cost of making a
Malungay burger. He provided you the following data:

 In 2013, Manalo made the following estimates for The Burger House for 2014:
 o Estimated variable overhead P216, 000
o Estimated fixed overhead P240, 000
o Estimated labor hours 12,000
o Estimated labor peso/hour P4
o Estimated output – malungay burger 240,000
 You learn the following facts for June, 2014:
o Actual direct labor hours 2,200
o Actual number of burgers produced 20,000
o Actual labor peso/hour P22
o Actual direct labor costs/malungay burger P4.62
o Actual direct materials/malungay burger P2.2

Apply overhead to malungay burgers using direct labor hours as the allocated base.

REQUIRED: compute the unit cost/malungay burgers for June, 2014 using

1. Variable costing
2. Absorption costing