Answer:
Answer #1
WORKING NOTES: 1
CALCUALTION OF cost of production units by using absorption and variable Costing
Opening stock 0
Unit Produced = 80000
Unit Sold = 72000
Closing Stock = 8000
CALCULATION OF PER UNIT COST Per unit Cost
Direct Material $ 64,00,000 $ 80
Direct Labour $ 16,00,000 $ 20
Vairable Manufacturing Overhead $ 12,80,000 $ 16
Fixed Manufacturing Overhead $ 3,20,000 $ 4
Cost of Production per unit $ 96,00,000 $ 120
WORKING NOTES: 2
Particulars Absorption Costing Variable Costing
Direct Material $ 80 $ 80
Direct Labour $ 20 $ 20
Vairable Manufacturing Overhead $ 16 $ 16
Fixed Manufacturing Overhead $ 4 $ -
Cost of Production per unit $ 120.0 $ 116.00
SOLUTION : 1
ABOSRPTION COSTING INCOME STATEMENTS Absorption Costing
Sales $ 1,08,00,000
Cost of Goods Sold
Beginning inventory $ -
Cost of Goods Manufactured $ 96,00,000
Less: Ending Inventory (8,000 X $ 120) $ 9,60,000
Cost of Goods Sold $ 86,40,000
Gross Profit $ 21,60,000
Less : Selling Expenses
Fixed Selling Expenses $ 10,80,000
Variable Selling Expenses(40,000 units * 3) $ 1,80,000
Net Income $ 9,00,000
SOLUTION : 2
VARIABLE COSTING INCOME STATEMENTS Variable Costing
Sales $ 1,08,00,000
Cost of Goods Sold
Beginning inventory $ -
Cost of Goods Manufactured (80,000 units X $ 116) $ 92,80,000
Less: Ending Inventory (8,000 Units X $ 116) $ 9,28,000
Cost of Goods Sold $ 83,52,000
Selling Expenses $ 10,80,000
Gross Profit $ 13,68,000
Less: Fixed Manufacturing overhead $ 3,20,000
Less : Fixed Selling Expenses $ 1,80,000
Net Income $ 8,68,000
SOLUTION : 3
Difference in profit in both method is due to closing inventory. In absorption costing Fixed manufacturing
overhead is charged on cost of goods sold but in variable costing this expenses is charged as periodical cost
