Honours Coaching Centre

Advanced Cost Accounting

MBA Final
Chapter : Variable & Absorption Costing Sheet no- M 02
Part - B
Problem – 1.
Jawad company produces a product and the following data is available for the month of June.
Number of units produced during the year 25,000
Variable cost per unit : Tk.
Direct Materials 10.00
Direct Labor 8.00
Variable Factory Overhead 5.00
Variable Selling and Distribution Expenses 2.00
Variable Office and Administration Expenses 2.00
Fixed cost per year :
Fixed Factory Overhead Tk. 50,000
Fixed Selling and Distribution Expenses Tk. 20,000
Office and Administrative Expenses Tk. 30,000
Required :
a) Compute the Unit product cost under Direct Costing.
b) Compute the Unit product cost under Absorption Costing.

Problem – 2.
Mahin company produces a single product and supplies the following cost data :
Production during the year 2,00,000 units
Sales during the year 1,50,000 units
Production cost consisted of direct materials Tk. 15,00,000, Direct labor Tk. 10,00,000, Variable factory
Overhead Tk. 4,00,000 and Fixed factory overhead Tk. 2,00,000
Required :
a) Compute the unit product cost and ending inventory value under direct/ variable costing and absorption
costing.
b) Compute the difference of ending inventory value between absorption costing and direct costing.

Problem – 3.
ABC Company Ltd has the following data :
Net operating income under absorption costing Tk. 1,00,000
Net operating income under direct costing Tk. 80,000
Beginning inventory value of direct costing Tk. 40,000
Beginning inventory value absorption costing Tk. 60,000
Ending inventory value of direct costing Tk. 60,000
Ending inventory value of Absorption costing Tk. 1,00,000
Required : Reconcile the absorption costing and direct costing

Problem – 4.
Shampa Corporation produced 24,000 units (normal capacity) of product during the year. 20,000 units were
sold @ Tk. 22 per unit. Cost of this production was :
Direct Materials Tk. 60,000
Direct Labor 60,000
Factory Overhead :
Variable Cost 1,20,000
Fixed Cost 96,000
Marketing and administrative expenses for the year total Tk. 70,000; all are fixed expenses. You are required
to prepare An Income Statement using Variable Costing.
Problem – 5.
Adib Company produces a single product and supplies the following cost data :
Production during the year 20,000 units
Sales during the year 15,000 units
Direct material cost Tk. 1,50,000
Direct labor cost Tk. 1,00,000
Variable factory overhead Tk. 40,000
Fixed factory overhead Tk. 20,000
Required :
Cost per unit and value of ending inventory under variable costing.
Cost per unit and value of ending inventory under absorption costing.

Problem – 6.
NUHA Ltd. has the following data :
Particulars Year 1 Year 2
Beginning inventory as per variable costing Nil 40,000
Beginning inventory as per absorption costing Nil 58,000
Ending inventory as per variable costing 40,000 Nil
Ending inventory as per absorption costing 58,000 Nil
Profit as per variable costing 50,000 50,000
Profit as absorption costing 68,000 32,000
Prepare a Reconciliation statement.
Part - C
Problem – 1.
Balaka Bicycle of Dhaka, Bangladesh, produces an inexpensive, yet rugged bicycle for use on the city's crowded
streets that it sells for Tk. 500.Selected data for the company's operations last year follow :
Units in beginning inventory 0
Units produced 10,000
Units sold 8,000
Units in ending inventory 2,000
Variable costs per unit :
Direct materials Tk. 120
Direct labor 140
Variable manufacturing overhead 50
Variable selling and administrative expenses 20
Fixed costs :
Fixed manufacturing overhead Tk. 6,00,000
Fixed selling and administrative expenses 4,00,000
Required :
1. Assume that the company uses absorption costing. (a) Compute the unit manufacturing cost for one bicycle.
(b) Prepare an income statement for the year.
2. Assume that the company uses variable costing. (a) Compute the unit manufacturing cost for one bicycle.
(b) Prepare an income statement for the year.
3. Reconcile the variable costing & absorption costing net operating incomes.

Problem – 2.
The cost department of G. Khan and Sons Inc. has stabilized the following standards for manufacturing.
Normal capacity (Units) 2,00,000
Maximum capacity (Units) 2,50,000
Standard variable manufacturing cost per unit Tk. 15
Variable marketing expenses per unit sold Tk. 5
Fixed factory overhead Tk. 4,00,000
Fixed marketing expenses Tk. 2,50,000
Selling price per unit Tk. 30
Operating units for the year ended 2012 were as follows :
Beginning inventory (Units) 20,000
Sales (Units) 1,75,000
Production (Units) 1,80,000
Required : Prepare an income statement using Variable and absorption costing and also the reconcile
Statement.
Problem – 3.
The following particulars are from the books of a company for the year ended 2012:
Salés : 1,50,000 kgs. @ Tk. 20.00 per kg. Finished goods inventory (1st Jan. 2012): 24,000 kgs. Finished goods
inventory (31st. Dec.-2012) : 34,000 kgs.
Production Cost :
Variable production cost per kg : Tk. 8.00
Fixed factory overhead : Tk. 1,60,000.
(Normal prpduction capacity 1,60,000 kg.)
Administrative and marketing expenses :
Variable Cost of sales Tk 1.00 per kg.
Fixed (Admn. & Marketing exp.) Tk. 3,00,000.
Standard costing system is used.
Required :
1. Income statement for the year 2012 under variable and Absorption costing method.
2. Statement showing the difference in net operating income under the two methods.

Problem – 4.
Nahid Company is comparing its presents absorption costing practice with Variable costing method. An
examination of its records produced the following information.
Budgeted production 40,000 units
Budget fixed factory overhead Taka 80,000
Fixed marketing and administrative expenses Taka 20,000
Sales price per unit Taka 12
Standard variable manufacturing cost per unit Taka 5
Variable marketing expenses per unit Taka 1
For the year the following data are available :
Actual production 32000 units
Actual sales unit 29000 units
Finished goods inventory, Jan. 1 1000 units
Unfavourable variance from standard cost Tk. 5,000
Required
a) Prepare Variable costing income statement;
b) Prepare absorption costing income statement.

Problem – 5.
The following data is available for the month of April
Beginning inventory Nil
Sales units 6,000
Production units 9,000
Selling price (per unit) Tk. 25
Variable manufacturing expenses (per unit) Tk. 12
Fixed factory overhead (per unit) Tk. 4
fixed factory overhead (total) Tk. 30,000
Commercial expenses (fixed) Tk. 12,000
Required :
a) Prepare an Income statement applying variable costing and absorption costing;
b) Prepare a Reconciliation statement.

Problem – 6.
The following data pertain to April :
Beginning inventory 0 units
Units sold 5,000 units
Units produced 8,000 units
Sales price per unit Tk. 24
Variable manufacturing cost per unit Tk. 10
Fixed factory overhead (Total) Tk. 28,000
Fixed factory overhead (per unit) Tke 3.5
Commercial expense (all fixed) Tk. 10,000
Required :
a) Prepare an income statement using Variable costing.
b) Prepare an income statement using absorption costinge
c) Show computation explaining the difference in operating income between the two methods.

Problem – 7.
Ahmed Ltd. uses absorption costing system. The president has recently heard about variable costing.However,
he supplies you the following data :
Normal capacity 1,000 units
Beginning inventory 200 units
Production 900 units
Sales 1,000 units @ Tk. 10.00 per unit
Materials costs Tk. 2.00 per unit
Labor Tk. 2.00 per unit
Variable overhead Tk. 1.00 unit
Fixed manufacturing expenses Tk. 2,700
Fixed selling expense Tk. 1,300
Unfavorable variable cost variance from standard Tk. 200.
Required:
Income statement under:
a) Absorption costing method;
b) Variable costing method.

Problem – 8.
Following are the data pertaining to a year of business operations :
Units produced 6,00,000 units
Units sold 5,00,000 units
Direct materials cost (Purchase) Tk. 9,00,000
Direct labor cost incurred Tk. 3,00,000
Variable factory overhead incurred Tk. 7,50,000
Fixed factory overhead incurred Tk. 12,00,000
Selling and administrative exp. (fixed) Tk. 27,50,000
Selling price per unit Tk. 6
Beginning raw materials inventory 1,00,000 units
Ending raw materials inventory 1,00,000 units
You are required to
a) Determined the valuation of ending finished goods inventory under absorption and variable costing
method, and variable costing.
b) Prepare income statement using absorption and variable costing method.
c) Reconcile the variable costing and absorption costing net income.

Problem – 9.
The following data is available for the month of April:
Beginning finished goods (unit) 4,000
Sales (unit) 20,000
Actual production (unit) 24,000
Sales price (per unit) 30
Variable manufacturing cost: Taka (per unit)
Direct material 4
Direct labor 3
Variable production overhead 2
Total 9
Fixed production overhead 50,000
Normal production unit 25,000
Commercial expense (fixed) Tk. 10,000 and variable 10,000, Administrative expense (fixed) Tk. 5,000.
Required :
a) Prepare Income statement applying Variable costing and Absorption Costing;
b) Prepare a Reconciliation statement.
Problem – 10.
Eastern company is comparing its present absorption costing practice with variable costing methods. An
examination of its records produced the following information
Maximum plant capacity 40,000 units
Normal capacity 36,000 units
Fixed factory overhead Tk. 54,000
Fixed marketing and administrative expense Tk. 40,000
sales price per unit Tk. 10
Standard variable manufacturing per unit Tk. 4
Variable marketing expenses per unit sold Tk. 1
For the year the following data are available :
Budgeted production 36,000 units
Actual production 30,000 units
Sales 28,000 units
Finished goods inventory, January 1, 1,000 units
Unfavorable manufacturing cost Tk. 5,000
Required
a) Prepare a variable costing income statement.
b) Prepare a absorption costing income statement.
c) Prepare a reconciliation statement.

Problem – 11.
Crawford Company uses a standard cost system in accounting for its only product craw which it sells for Tk.
22 per unit. The standard cost per unit is :
Direct materials Tk. 4.00
Direct labor 6.00
Variable factory overhead 2.00
Fixed factory overhead (Normal capacity 60,000 units) 3.00
Total Tk. 15.00
All variances are closed to cost of goods sold. On October 1, there were 10,000 units of craw on hand. During
October 50,000 units were produced and 45,000 units were sold. Costs incurred during October were
Direct material Tk. 1,98,000
Direct labor 3,05,000
Variable factory overhead 1,03,000
Fixed factory overhead 1,86,000
Variable marketing and administrative expenses 50,000
Fixed marketing and administrative expenses 74,000
Required :
a) Explain whether Crawford uses Variable or Absorption Costing?
b) Prepare an Income Statement for October using Variable Costing.
c) Prepare an Income Statement for October using Absorption Costing.
d) Prepare a reconciliation statement.

Problem – 12.
Bangladesh Iron works manüfactures a product and supplies the following cost data :
Variable manufacturing costs per unit Tk. 4
Fixed manufacturing cost per year Tk. 2,00,000
Normal production per year 2,00,000 units
In the year 2011 the company produced 2,00,000 units and sold 1,80,000 units at Tk. 7 per unit. ln the years
2012 the company produced 2,10,000 units and sold 2,15,000 units at Tk. 7 per unit. There was no works in
process inventory.
Required :
1. Prepare income statement for the year 2011 and 2012 under.
a) Absorption costing and b) Variable costing.
2. Prepare a reconciliation statement to reconcile the net incomes under variable costing and absorption
costing.
Problem – 13.
The Western Company sells its razors at Tk. 3 per unit. The company uses FIFO actual costing system. A new
fixed manufacturing overhead allocation rate is computed each year by dividing the actual fixed manufacturing
overhead cost by the actual production units. The following data relating to its first two years of operations :
Year – 1 Year – 2
Sales 1,000 units 1,200 units
Production 1,400 units 1,000 units
Variable manufacturing cost Tk. 700 Tk. 500
Fixed manufacturing cost Tk. 700 Tk. 700
Variable marketing and administrative cost Tk. 1,000 Tk. 1,200
Fixed marketing and administrative cost Tk. 400 Tk. 400
a) Prepare an Income Statement for October using Variable Costing.
b) Prepare an Income Statement for October using Absorption Costing.
c) Prepare a reconciliation statement.

Problem – 14.
The following figures are extracted from the books of a company for the years 2011-2012 whose production
capacity is 10,000 units per annum.
Direct material Tk. 3.50 per unit
Direct Labor Tk. 0.50 per unit
Fixed overhead Tk. 2.00 per unit
Selling price Tk. 8.00 per unit

2011 2012
Production (Unit) 10,000 10,000
Sales Unit 8,000 12,000
Prepare an income statement under marginal costing and absorption costing and also prepare a reconciliation
statement to reconcile the marginal costing and absorption costing net operating.