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Tutorial Variable Vs Absorpotion Costing - SMPT 04.01.2022

The document provides an example comparing absorption costing and variable costing methods. It shows the product costs, income statements, and reconciliation for two years under both methods. Absorption costing allocates fixed manufacturing overhead to inventory, while variable costing treats it as a period expense.

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Portgas D Anne
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16 views2 pages

Tutorial Variable Vs Absorpotion Costing - SMPT 04.01.2022

The document provides an example comparing absorption costing and variable costing methods. It shows the product costs, income statements, and reconciliation for two years under both methods. Absorption costing allocates fixed manufacturing overhead to inventory, while variable costing treats it as a period expense.

Uploaded by

Portgas D Anne
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Review Problem 1:

1) Absorption costing

a) Product costs in unit:

Year 1 Year 2
DM 11 11
DL 6 6
MOH:
Variable 3 3
Fixed (120000/10000) 12
(120000/6000) 20
Unit product cost 32 40

b) Income statement:
Year 1 Year 2
Sales (8000 x 50) 400000 400000
(-) COGS
8000 x 32 -256000
(2000 x 32) + (6000 x 40) -304000
Gross margin 144000 96000
(-) Selling and admin exp:
Variable (8000 x 4) -32000 -32000
Fixed -70000 -70000
Net operating income/(loss) 42000 -6000 36000

2) Variable costing

a) Product cost in unit

Year 1 Year 2
DM 11 11
DL 6 6
MOH:
Variable 3 3
Unit product cost 20 20

b) Income statement:
Year 1 Year 2
Sales 400000 400000
(-) COGS:
Variable COGS (8000 x 20) -160000 -160000
Variable selling (8000 x 4) -32000 -32000
Gross margin 208000 208000
(-) Fixed exp:
Fixed MOH -120000 -120000
Fixed selling -70000 -70000
Net operating income 18000 18000 36000

3) Reconciliation
Year 1 Year 2
Variable costing NOI 18000 18000
Add: Fixed MOH cost deferred
under absorption costing
(2000 unit x 12) 24000
Less: Fixed MOH cost released
under absorption costing
(2000 unit x 12) -24000
Absorption costing NOI 42000 -6000

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