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Lec 4

This document contains lecture notes on cost accounting that compare absorption costing and variable costing income statements. It includes an example problem calculating the income statements for a company with given production, sales, price, and cost information. The notes show the working paper for the example and the completed income statements using both absorption and variable costing methods. Key differences are that absorption costing includes fixed manufacturing costs in cost of goods sold while variable costing treats them as a deduction from contribution margin.

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Ramez Reda
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42 views

Lec 4

This document contains lecture notes on cost accounting that compare absorption costing and variable costing income statements. It includes an example problem calculating the income statements for a company with given production, sales, price, and cost information. The notes show the working paper for the example and the completed income statements using both absorption and variable costing methods. Key differences are that absorption costing includes fixed manufacturing costs in cost of goods sold while variable costing treats them as a deduction from contribution margin.

Uploaded by

Ramez Reda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Lecture (4)

Cost Accounting

Fall Semester 2022 / 2023

2
»Inventory Costing«

Chapter 2 - continue

3
Absorption Costing Income Statement .2
Revenues ( sales units x price per unit) .1 xxx

Beginning Inventory (V.+F.) xxx


+ Manufacturing cost (V. +F.) xxx )-(
(-) Ending Inventory (V.+F.) (xxx)
2. Cost of goods sold )xxx(
Gross Margin .3 xxxxx
(-) Operating cost ( V. +F.) )xxx(
4. Operating Net Income xxxxxx

4
Variable costing Income Statement -3
1. Revenues (sales units x price per unit) xxx
Beginning Inventory xxx
+ variable manufacturing cost xxx
(-) Ending Inventory (variable only) (Xxx) )-(
= Variable cost of goods sold xxxx

+ variable operating cost xxx


2.Total variable cost )xxx(
3. Contribution Margin xxxx
(-) fixed Costs ( F.Manufac. +F. Operating) )xxxx(
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4. Operating Net Income xxxx
:Example
Beginning Inventory units 0
Production units units 400,000
Sales units units 240,000
Selling price per unit 60$
Variable manufacturing cost per 30$
unit
total Fixed Manufacturing Cost 600,000 $
total Fixed Marketing and 400,000$
Administrative Cost

- Prepare income statement using variable costing.


- Prepare income statement using absorption costing.

6
:Working paper
Items Absorption Variable
Revenues= Sales units x 14,400,000$ 14,400,000$
Selling price per unit
240,000x60=
144,000,000
Manufacturing cost: Variable + fixed Variable only
- Variable 600,000 + 12,000,000 12,000,000 $
manufacturing cost 12,600,000$
(30x 400,000)
=12,000,000 $
- Fixed Manufacturing
Cost ( 1.5 x 400,
000)= 600,000$
- Ending Inventory Variable + fixed variable only
400,000- 240,000 = (30+1.5)x 160,000= 30x160,000=4,800,000
160,000 units 5,040,00 $

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Absorption Costing Income Statement .1
Revenues 14,400,000 .1
Beginning Inventory 0
+ Manufacturing cost:
Variable manuf. Cost 12,000, 000
Fixed manuf. Cost 600,000 (-)
(-) Ending Inventory (5,040,000)
2. Cost of goods sold (7,560,000 )

3. Gross Margin 6,840,000


(-) Operating cost:
fixed marketing and administrative ( 400,000)

4. Operating Net Income 6,440,000

8
Variable costing Income Statement -2
1. Revenues 14, 400,000
Beginning Inventory 0
+ variable manufacturing cost 12,000,000
(-) Ending Inventory (variable only) (4,800,000)
= Variable cost of goods sold (-)
+ variable operating cost 0
2.Total variable cost (7,200,000)
3. Contribution Margin 7,200,000

(-) fixed Costs:


fixed manufacturing cost 600,000
Fixed marketing and administrative 400,000
Total fixed cost (1,000,000)

4. Operating Net Income 6,200,000

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