CHAPTER SEVEN VARIABLE COSTING VERSUS ABSORPTION COSTING VARIABLE (DIRECT, MARGINAL) COSTING - It is a costing method whereby Be aisle, direct Inbor and variable manufacturing overhead ate weaned se Gilad cost, while fixed manufacturing overhead is tredted as period costs (cost expensed currently in the income statement) A variable costing income statement presents costs according to their behaviour as variable Or fixed costs and then according to functions within the behavioural classifications, A variable costing income statement shows the variable cost of goods sold. Manufacturing (Product) contribution margin is the difference between sales and variable cost of goods sold. Product contribution margin minus variable selling and administrative expenses equals total contribution margin. Total contribution margin minus the sum of fixed overhead and fixed selling and administrative expenses is income before income taxes. ABSORPTION (FULL, CONVENTIONAL) COSTING - It is the traditional method 6f product costing in which direct materials, direct labor. and both variable and fixed manufacturing overhead are treated as product costs and are charged to inventories An absorption costing income statement presents costs according to their functional classifications. A functional classification is a group of costs that a company incurs for the same basic purpose. This group of costs are product or period costs. An absorption costing income statement shows the difference between sales and cost of goods sold (product costs) as gross margin. Gross Margin minus the selling and administrative expenses (period costs) is income before income taxes. APPLICATIONS OF VARIABLE COSTING Variable costing is used for internal purposes only. Its uses include: 1. Inventory valuation Income measurement.1 _ Jota fined costs reported in the income statement when incurred coffe of fixed cost on net income. Rie aot ee Fixed cost is not accounted for as inventoriable cost, This simplifies thee nd Keeping and provides a better basis for accounting and control " incurred 3. Net income is not influenced by production and inventory changes. Net income varies sales. with sales. ’ 4. The income statement-reporting format is extremely useful for management purposes. determining cost-volume relationships and contribution margin data. DISADVANTAGES OF VARIABLE COSTING Variable costing is not acceptable for external and income tax reporting. Costs are required to be separated into fixed and variable. This can be very difficult and often subject to individual judgement. Costs are not properly match with revenues in accordance with the generally accepted accounting principles ‘Too much attention may be given to variable costs at the expense of disregarding fixed costs. EFFECTS ON NET INCOME 3. EProduction is equal to sales: absorption profit is equal to variable costing profit. 2 If production is greater than sales: absorption profit is higher than variable costing profit If production is less than sales; absorption profit is lower than variable costing profit. » Under variable costing income tends to move with sales, whereas under osting income tends to move with production. Thus, net income can be influenced by Inventory changes under absorption costing, but not under direct costing, RECONCILIATION OF NET INCOME UNDER COSTING AND VA ILE COSTIN Fixed Manufacturing Costs attached in Inventory Beginning Less: Fixed Manufacturing Costs attached in InventoryUnits produced Fixed manufacturing overhead Variable manufacturing overhead Fixed selling and administrative expenses Variable selling and administrative expense Direct materials used Direct labor 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 SOLUTION-EXAMPLE PROBLEM 1 a. Full Production Costs Direct Materials P 30,000 Direct Labor 24,000 Variable Manufacturing overhead 12,000 Fixed Manufacturing overhead _ 44.000 Divide by Units produced : Full Production Cost per Unit Inventory, End {(100 + 2,200) - 2,000} ee? Ending Finished Goods Inventory - Absorption Costing256,000 96,000 64,000 80,000 10,000 2,000 Finished goods, end in units None Finished goods, beg, in units REQUIRED: Prepare an Income Statement for 2008 using the data above under: 8 Variable (Direct) costing system. b. Absorption costing system SOLUTION-EXAMPLE PROBLEM 2 ABC COMPANY INCOME STATEMENT For the Year Ended December 31, 2008 (Variable Costing) Less: Inventory, End ____ P96,000/10,000) x 2,000 Margin.ABC COMPANY INCOME STATEMENT For the Year Ended December 31, 2008 (Absorption Costing) Sales Cost of Sales: Production Costs: Variable _ Fixed Total Production Costs Inventory, End (P160,000/10,000) x 2,000 Gross Margin Fixed Selling and Administrative Net Income EXAMPLE PROBLEM 3 The following data were taken from the records of DIRAB Company for the years ending December 31. 2007 and 2008 In Units 2007 Inventory, Jan. | -0- 0.000 Production Available for sale 20.000 Units sold 13,000 Inventory, Dec. 31Variable Costs: Manufacturing Costs * P 97,500 Selling and Administrative ** 18,000 Total Variable Costs P115,500 Contribution Margin 144,500 Fixed Costs: Manufacturing Costs P 50,000 Selling and Administrative *** 27.000 Total Fixed Costs 77,000 P_99,000 P172,500 z 00 Net Income P 67,500 P158,500 {., Variable Manufacturing Costs - 2007 = (13,000 x P7.50); 2008 = (23,000 x PT 50) & Variable Selling & Adm.-2007 = (P45,000 x 40%): 2008 = (P75,000 x 40%) *** Fixed Selling & Adm. - 2007 = (P45,000 x 60%); 2008 = (P75,000 x 60%) Alternative Presenta 2008 Sales Variable Cost of Sales: 000 P460,000 Inventory, Jan, 1 2 Variable Manufacturing Costs 150,000 P 52,500 ee. P150,000. 187.500 Variable Cost of Sales at 15,000.= 222 Bz EE Bl 000, 500 DIRABCOMPANY COMPARATIVE INCOME STATEMENTS ~ For the Year Ended December 31, 2007 and 2008 (Absorption Costing) 2007 Sales 260,000 Cost of Sales: : Production Costs Variable Manufacturing Costs P150,000 Fixed Manufacturing Costs 50,000 Total Production Costs 200,000 Inventory, Jan, 1 S Total Goods Available P2000 Inventory, Dec. 31 * 70,000 Cost of Sales P 130,000 Gross Margin 130,000 Selling and Administrative _ 45,000 Net Income P 85,000 * Inventory, Dec. 31 - 2007 = (P200,000/20,000 x 7,000) ~ 2008 = (P189,000/18,000 x 2,000) Reconciliation of Net Income: ‘Net Income under Absorption Costing Add: Fixed manufacturing costs in Jan. 1, Inventory * Less: Fixed manufacturing costs in Dec. 31, Inventory ‘Net Income under Variable Costing * Fixed Mfg. Cost - 2007 = [(P50,000/20,000) x 7,000] 2008 = [(P54,000/18,000) x 2,000] 135,000 —54,000 P189,000 70,000 259,000 21,000 238,000 P222,000 75,000 P 147,000 NOTE: normal, standard, or budgeted capacity is not mentioned fe ee overhead per unit is computed by div> PROBLEM 4 : _ The Varfll Company presen he ftloing dt for 2007 and 2008 Pees . _— Standard Costs per unit: , Direct materials P13.00 Direct labor 10.00 Variable factory overhead 2.00 Variable Cost Per unit 25.00 Production and Sales-Units: 2007 Production 17,000 2007 Sales 14,000 2008 Production 14,000 2008 Sales 16,000 ‘There was no 2007 Inventory, Beginning. The expected normal production ead year is 15,000 units. Total fixed manufacturing overhead each year are P120,000. produced are expected to be sold at P45.00 cach 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, 2007 and 2008 under a. Direct Costing method. ae r __b. Absorption Costing methodINCOME STATEMENTS For the Years Ended Dec. 31, 2007 and 2008 (Variable Costing) ‘Units Manufactured snail faah Units Sold 14,000. Sales at PAS P630,000 Variable Cost of Sales: Inventory, Jan. 1 Pra Production Costs: Direct materials 221,000 Direct labor 170.000. Variable overhead 34.000 Goods Available 425,000 Inventory. Dec. 31 75,000 Variable Cost of Sales P350,000 Contribution Margin (Manufacturing) P280,000 Variable Selling and Administrative 63.000. Contribution Margin (Final) 217,000 Fixed Costs. Manufacturing overhead P120.000 Selling and Administrative 65,000 Total Fixed Costs P185,000 Net Income P. 32,000 ion of Inventories (Variable Costing) 2007 = [(17,000 - 14,000) x P25 = P75,000 2008 = [(3.000 + 14,000 -16,000) x P25] = P25.000170,000 34,000 inve (unt moaut X 7 —136,000 Year P561,000 and. 99,000 Unadjusted Cost of Sales P462,000 Capacity Variance (16,000) Vari Adjusted Cost of Sales 446,000 analy Gross Margin P184.000 oper: Selling and Administrative Expenses: mani Variable Selling and Administrative P 63,000 Fixed Selling and Administrative Aco Total Selling and Administrative Purp. Mana : Net Income ofa. makii 15,000 normal units = PR per age, POT UR is Capacity Variance is computed as follows: Firion 209 * = ets.) 00 (14.000 x Py] = Bg on Computed by dividing P120,000_ 1,000 x P8 Net Income-Direct Costing P63,000 P.95.000 Note: As a whole, it is only the fixed manufacturing costs attached to current ending inventory that causes the difference in net income. Prior periods counter balance by itself Yearly difference in net income is caused by the fixed manufacturing costs in the beginning and ending inventories Variable costing allows a company to use models to calculate the break-even point, analyze cost-volume-profit relationships, and compute margin of safety and the degree of operating leverage Managers should understand cost-volume-profit relationships to manage a company effectively and efficiently, ‘A company must use absorption costing for external financial reporting and for income tax purposes. Managers, however, may prefer variable costing to help them fulfill their ‘managerial duties. Variable costing allows managers to see more easily the effect on costs ofa change in the activity level. Thus, managers often find variable costing more helpful in making short-term decisionsQUESTIONS : MULTIPLE CHOICE es + clement of p i i what costs attendant to an © : foe i teat 003 to compute variances from , Total costs d. Fixed costs An income statement is prepared as an internal on Under which of eae . id ’ methods would the term ee margin appeal Costing ems a No No © Yes . b, No Yes d Yes Yes 3. The direct costing method includes in inventory a. Direct material cost, direct labor cost, but not all factory overhead cost. b. Direct material cost, direct labor cost, and variable factory overhead cost. ¢. Prime cost but not conversion cost. d. Prime cost and all conversion cost What factor, related to manufacturing, co: computed using absorption costing and net earn computed under direct costing? a. Absorption costing considers all ci in the determin: whereas direct costing considers only direct costs. b. Absorption costing allocates fixed costs between cost of goods sold inventories, and direct costing considers all fixed costs to be Period costs. Absorption costing "inventories" all fixed costs for the Period in ending goods inventory, but direct costing expenses all fixed costs. Absorption costing "inventories" all dire ; ic A ees ease oe ect costs, but direct costing cons ‘auses the difference in net camings” a ation of net earings, 5. Which of the following must be known about a direct costing system ts Production process in order 1o in ‘The variable and fixed components of, all costs 4 The controllable and uncontrollable components ote, ¢o Production. Standard production rates and time for al Of pre euated top Contribution margin and reak-cven point for all goade section: production.basic tenet of direct costi is that akc vat costing na Period cost shouldbe curently expense. What Period costs are uncontrollable and should not be charged to a specific product Fenod costs are generally immaterial in amount and the cost of assigning { ‘amounts to specific products would outweigh benefits. : ‘Ailccation of Period costs is arbitrary at best and could lead to erroneous decisions Period costs will occur whether or not production occurs and so it is improper to allocate these costs to production and defer a current cost of doing business. & Why is direct costing not in compliance with generally accepted accounting principles? Fixed manufacturing costs are assumed to be period costs. Direct costing procedures are not well known in industry Net camings are always overstated when using direct costing? Direct costing ignores the concept of lower of cost or market when valuing. inventory 9. What is the basic difference between direct costing and absorption costing? Direct costing always produces less taxable income than absorption costing. Direct costing recognizes fixed costs as a period cost and absorption costing recognizes fixed costs as a product cost Direct costing mnot use standards. whereas standards may be used with absorption costing Direct costing may be used only in situations were production is essentially homogencous but absorption costing may be used under any circumstances. 40. What will be the difference in net carnings computed using direct costing as ‘opposed to absorption costing if the ending inventory increases with respect to the beginning inventories in terms of units? a. There will be no difference in net carnings. * a b. Net camings computed using direct costing would be hi Jia The difference in net carnings cannot be determined from the information given. Net carnings computed using direct costing would be lower. 5a13. Operating camings computed using variable (direct) costing would exceed amings computed using absorption costing if @. Units sold exceed units produced ‘b. Units sold are less than units produced. © Units sold equals units produced @. The unit fixed cost is zero. 14. Net income reported under absorption costing will exceed net income reported. direct costing for a period if Production equals sales for that period b. Production exceeds sales for that period €. Sales exceed production for that period @. The variable overhead exceeds the fixed overhead 1S, Fleet, Inc. manufactured 700 units of Product A. a new product, in 2008, Product ¥anable and fixed manufacturing costs per unit were P6 and P2, respectively, Inventory of Product A on December 31, 2008 consisted of 100 units. There wa pxcmory on January 1. 2008. What would be the change in the peso amound inventory on Decem| 2008 if the direct costing method was used instead of} absorption costing meth 5 a. P800 decrease c. None b. P200 decrease d, P200 increase 46 Net income reported under direct costing will exceed net i ported absorption costing for the period if ‘ a a. Production equals sales for tht period 1B. Production is greater,than sales for that period "€. Sales are greater than production for that period The variable costs exceed the fixed costsa. Absorption costing b. Price costing ~ 20. Direct costing is used for a. Inventory valuation b. Income measurement (Je. Variable costing d. Relevant costing internal purposes only which include the following except & ¢. Relevant cost analysis. 4. Capital investment decisions 21. If an income statement is prepared as an internal report, under which of the following methods would the term gross profit most likely appear’? a. Both absorption costing and direct costing, b. Absorption costing but not direct costing €. Direct costing but not absorption costing @. Neither direct costing nor absorption costing, 22. An allocated portion of fixed factory overhead is included in work in process inventory under ‘ Absorption Costing Direct Costing Absorption Costing Direct Costing a No No c Yes No b. No Yes 4 Yes Yes 23. In an income statement prepared as an internal report usiny fixed selling and administrative expenses would a. Not be used. b. Be used in the computation of the contribution margin. _& Beused in the computation of operating income, 1 the direct costing method,Bevused inthe computation ofthe contribution margin. Be used in the computation of operating income but not in 3 contribution margin. Be treated the same as fixed selling and administrative. expenses . Absorption costing is required - b. o a For financial accounting purposes only For financial accounting and tax purposes For financial and managerial accounting purposes For managerial accounting purposes : . Which of the following is not a type of absorption costing? Direct costing Actual costing Normal costing Traditional costing . Variable costing is not acceptable for a. b. ic. d. 29. Variable costing and absorption costing 2. b. Managerial accounting Financial accounting, Transfer pricing Costing product for internal purposes will show the same incomes when there are Beginning inventories Ending inventoriesits operations on January 1. 2008, and produces a Gordon uses an actual cost system. In 2008, 11 ‘units were sold. There was no work-in-process inventory at December 31, 2008. Manufacturing costs and selling and administrative expenses for 2008 were as follows: Fixed Costs Variable Costs Raw material = P2.00 per unit produced Direet labor = 1.25 per unit produced Factory Overhead P120,000 0.75 per unit produced Selling and Administrative 70,000 1.00 per unit sold i pt t woul be Gordon's operating income for 2008 under the variable (direct) costing a. P114,000 b. P210,000 c. P234,000 d. P330,000 2. What would be Gordon's finished goods inventory at December 31, 2008, under the absorption costing method? a. P80,000 b. P104,000 c. P110,000 d. P124,000 3. During October 2008, Gable, Inc. produced 10,000 units of Product F with costs as follows: Direct materials 40,000 Variable overhead 13,000 Direct labor 22,000 Fixed overhead 10,000 ‘What is Gable's unit cost of Product F for October 2008 calculated on the direct costing basis? a. P6.20 ns 4 and 5 are based on the following information: b. P7.20 c. P7.50 d. P&.50 Selected data conceming the operations of Kem Company’ for the ci lone is available as follows:pies c. P8000 - ~~ d. 9,700 a 3 5. Which costing method, absorption or variable, would show higher op and by what amount? . Costing Method Amount Costing Method \@. Absorption costing 2,500 cc. Absorption costing b. Variable costing P2,500 d. Variable costing Items 6 and 7 are based on the following data: Information from Peter Company's records for the year ended December 31, is available as follows Units sold 60.000 Units manufactured 70, Net sales P1,400,000 Operating expenses: 4 Cost of goods manufactured Variable P 98,000 3 Variable 630,000 Fixed 140,000 Fixed 315,000 F G inventory, beg. None 6. What would be Peter’s finished goods inventory cost at December 31, 2008, under the | variable (direct) costing system? 4 ya. P90,000 b. P104,000 ©. P105,000 d. P135,000 7. Under the absorption costing method, Peter's operating income for 2008 would be a. P217,000 b. P307.000 *c. P352,000 d. P374,500 Indiana Company began operations on January 2008, and Produces a single p that sells for P9 per unit. Indiana uses an actual Cost system. 100, 000 units Produced and 90,000 units were sold in 2008, There was ng Work-in-process inve December 31, 2008. Manufacturing costs and selling and administrative expenses for: were as follows: Fixed Costs v, 2 BUTS pecans prea 100,000 4,3 Pet uit Brod 000 0.50 per unit : 70.000: Ostperami See9 and 10 are based on the following information tion: = bat ses AoMBORY began its operations on January 1, 2008 and produces that sells for P7 per unit. Standard capacity is 100,060 umits rer oat Produced and 80,000 units were sold in 2008. "Manufacturing administrative expenses were as follows: Fixed Costs Variable Costs = P1.S0 per unit produced j 1.00 per unit produced ‘actory Overhead 150,000 0.50 per unit produced Selling and Administrative 80,000 0.50 per unit sold There were no variances from the standard variable costs. Any under or overhead is written off directly at year-end as an adjustment to the cost of goods sold. 9. In presenting inventory on the balance sheet at December 31, 2008, the unit cost under absorption costing is a. P2.50 b. P3.00 c. P3.50 d. P4.50 10. What is the net income for 2008 under direct costing? a. P50,000 b. 80,000 cc. P90,000 d. P120,000 Items 11 and 12 are based on the following information: Lima Company produced 100,000 units of Product Zee during the month of June. Costs incurred during June were as follows Direct materials used P100,000 Fixed mf. overhead PS0,000 Direct labor employed 80,000 Variable selling and general 12,000 Variable mfg. overhead 40,000 Fixed selling and general 45,000 11, What was Product Zee's unit cost under absorption costing? a. P3.27 b. P2.70 c. P2.20 d. P1380 42. What was Product Zce's unit cost under variable costing? a. P2.82 b. P2.70 ©. /P232 d P2.20 Ttems 13 and 14 are based on the following information:‘tems 15, 16, 17, and 18 are based on the following data: f ‘The following information is availabe for Keller Corporation's new product line: Selling price per unit P awe Variable manufacturing cost per unit of production 8 Total annual fixed manufacturing costs 25,000 Variable administrative costs per unit of production 3 Total annual fixed selling and administrative expenses 15,000 There was no inventory at the beginning of the year. During the year, 12,500 un were produced and 10,000 units were sold. 15. The ending inventory, assuming Keller uses direct costing would be a. P25,000 b. P32,500 c. P27,500 d. P20,000 16. The ending inventory, assuming Keller uses full (absorption) costing would be a. P32,500 b. P27,500 ©. P20,000 d | 9/17. The total variable costs charged direct costing would be a. P110,000 b. P100,000 c. P117,500 d. P 80,000 18. The total fixed costs charged against the current year's operations assuming that uses absorption costing is “a. P35,000 b. P40,000 25,000 d. P15,000 Items 19, and 20 are based on the following data: The Globe Company produced 100,04 3.00 per unit in 2008. Variable unit costs are: Fixed costs for 2008 include P30,000 ofNorwood Corporation is consider changing. its method ry alu absorption costing to direct costing a eapugid 93 cna tea ne ee the 2008 financial sine ae os : ‘ corporation manufactures Gink, which i 0 it. Marsh is added — “before Processing tarts and labor and overhead ether late dirag the < process, Pri ion Capacity is ty 0 i ink annually. standard costs per unit of Gink arg: lat M 100.000 units of Gink nae Marsh, 2 kilos P 3.00 Variable mfg. overhead P1,00 Labor 6.00 Fixed mfg, overhead 1.10 A process cost system is used employing standard cone, Variances from standard costs are now charged or credited to cost of goods wold. If direct costing were adopted only Tmrannecs resulting from variable costs would be charged or credited te cost of goods sold. Inventory data for 2008 follows Dec. 31. Jan Finished goods in Units 20,000 12,000 Transferred to finished goods during 2008, 110,000 units Actual fixed manufacturing overhead during the year was 121,000. There were no Natianees between standard variable costs and actual variable costs during the year. There Was no work-in-process in the beginning and end of the period. é REQUIRED : 1. Schedule of Standard unit costs under direet and absorption costing. 2. Comparative statement of costs of goods sold using direct costing and absorption costing PROBLEM 2 The management of Biking Company uses the follawing unit costs for the one it manufactures“Soto 9,000 100 11,0 _7,500 “3.500 Projected income statements for June, 2008 for Purposes under each of the following product costing methods: 4. Absorption costing with all variances charged to cost of goods sold cach month. 2. Direct (variable) costing, 3. Supporting schedules calculating inventoriable production costs per unit, Ignore _ income taxes. PROBLEM 3 Felix Mango, manager of Honey Burger House, asked for your advice a Product costs. Felix wants you to compute the cost of making a honey burger. Felit Provided you the following information: 4 a, In 2007, Felix made the following estimates for Honey Burger House for 2008: 4) Estimated variable overhead 216,000 2) Estimated fixed overhead P240,000 3) Estimated labor hours 4) Estimated labor peso per hour 5) Estimated Output - Burgers . You lear the following facts for June, 2008: 1) Actual direct labor hours Actual number of burgers produced Actual labor peso per hour l24.¢ MULTIPLE CHOICE SOLUTIONS Sales (80.000 x P10) 800,000 Variable costs: (P2.00 + P1.25 + P.75 + P1.00) x 80,000 = Fixed Costs (P120.000 + P70,000) = Operating Income-Variable Costing Finished Goods Inventory {(P2.00 + P1.25 + P'75) + (PI 20,000/100,000)] x 20,000 = Unit Cost - Direct Costing [(P40,000 + P22.000 + P13,000)/10,000 = Finished Goods Inventory-Variable Costing [(P40,000 + P20,000 + P12,000)/10, 000} x {10,000 — 9,000] = Finished Goods Inventory-Absorption Costing [(P40,000 + P20,000 + P12,000+ P25,000)/10,000] x 1,000 = Finished Goods Inventory-Variable Costing Operating Income-Absorption Costing higher by Finished Goods Inventory (P630,000/70,000) x. (70,000 - 60,0000) = Sales Cost of Sales [(P630,000 + P3 15,000)/70, 100] x 60,000 = 3 (P98,000 +P 140,000) Costing - Operating Income-AbsorptionSales (80,000 x p7 Variable Costs: (P} 5, +P Contribution Margin Fixed Costs: (P 150 0, Net Income- Direct 00 + P80, Costing 5 Unit Costs ~Absorption ¢ 1g F (P100.000 + P80,000 + 40.000 + P50, id Unit Costs -Variable Costin, (P100,000 + P80,000 + P40,000)/100,000) = Sales (5,000 x P45) Cost of Sales: [(P40,000 + P50000 + P36,000 + P30,000)/6,000} x 5,000 = (130,000) General and Administrative expenses Operating Income-Absorption Costing Sales (5,000 x P45) Variable costs. [(P40.000 + P50000 + P36,000)/6,000} x 5,000 = (ahs eet Fixed Costs (P30,000 + P60,000) = | Operating Income-Variable Costing 90,000) P 30,000 Inventory, End- Direct Costing (12,500 - 10,000) x P8.00 = Total Variable Costs Charged to aes (10,000 x P8) + (12,500 x P3)=NORWOOD CORPORATION Schedule of Standard Unit Costs Direct and Absorption Costing For the Year Ending December 31, 2008 Direct Costing Marsh, 2 kilos P 3.00 Labor Variable overhead Fixed overhead Standard Unit Costs NORWOOD CORPORATION Comparative Statement of Cost of Goods Sold For the Year Ending December 31,2008 Direct Costing Finished Goods. Beg: 20,000 x P10.00 P 200,000 20,000 xP 11.10 Cost of Goods Manufactured 110,000 x P10.00 1,100,000 110.000 x P11.10 Goods Available 1,300,000 Finished Goods. End: 12.000 x P10,00 120,000 %, 12,000 x PLL.10 P1,180,000es (7.500 x P80) ost of Goods Sold: __ Inventory, 2 r ican Coes one Goods Available m Inventory. End (3,500 x P60) Unadjusted Cost of Sales Capacity Variance (1,000 x P5) Gross Margin Selling and Adm.: Variable (7,500 x P4) Fixed (10,000 x P2.80) Net Income BICENT COMPANY Projected Income Statement For the Month of June, 2008 (Variable Costing) Sales Variable Cost of Sales: Tnventory, Beg. (2,000 x P55) Production Costs (9.000 x P55) _ Goods Available at ee Inventory, End (3,500 x P55) | ‘ontrib aan Margin-Manufacturing i AdministrativeTotal Cost Per Unit PROBLEM 3 ‘Computation of Pre-determined Overhead Rates: Variable Overhead Rate (P216,000/12,000 hours) = Fixed Overhead Rate (P240.000/12,000 hours) = Computation of Overhead Costs per Honey Burger: Variable (2,200 hours x P18)/20,000 burgers = Fixed (2.200 hours x P20)/20,000 burgers = 1. Actual direct materials Actual direct labor Variable overhead Total Unit Cost - Variable Costing