Format of Income statement under Absorption costing

Sales xxxxx
Less: Cost of Goods Sold:
Direct Material xxx
Direct Labor xxx
Variable Factory overhead xxx
Fixed Factory overhead xxx

Cost of Goods Manufactured xxxxx

Add: Finished goods (at start) xxx
Total Finished goods available xxxxx
Less: Finished goods (at end) (xxx)

COST OF GOODS SOLD xxxx

Adjustment of Fixed (over) / under

applied Factory overhead xxx/(xx)

COST OF GOODS SOLD (Actual) (xxxxx)

Gross Profit xxxx

Less: Marketing and administrative
Expenses (xxx)
Operating Income xxxx
 Format of Income statement under Direct costing
Sales xxxxx
Less: Cost of Goods Sold (Variable):
Direct Material xxx
Direct Labor xxx
Variable Factory overhead xxx

Variable Cost of Goods Manufactured xxxxx

Add: Finished goods (at start) xxx
Total Finished goods available at variable cost xxxxx
Less: Finished goods (at end) (xxx)

COST OF GOODS SOLD (Variable) (xxxx)

GROSS CONTRIBUTION MARGIN xxxx

Less: Variable Marketing and administrative
Expenses (xxx)

CONTRIBUTION MARGIN xxxx

Less: Fixed Expenses:

Fixed Factory overhead xxx
Fixed Marketing and Adminstrative expenses xxx (xxx)
OPERATING INCOME xxxxxx
3rd. Quarter
FG (at start) 40,000
Add: Produciton (100,000 x 80%) 80,000
Total FG available 120,000
Less: Sold units (100,000 x 80%) (80,000)
FG (at end) 40,000

4th Quarter"
FG (at start) 40,000
Add: Produciton (100,000 x 50%) 50,000
Total FG available 90,000
Less: Sold units (100,000 x 80%) (80,000)
FG (at end) 10,000

1st Quarter:
FG (at start) 10,000
Add: Produciton (100,000 x 110%) 110,000
Total FG available 120,000
Less: Sold units (100,000 x 80%) (80,000)
FG (at end) 40,000
 2*2
Format of Income statement under Absorption costing

Sales (7,500 units x $ 80) 600,000

Less: Cost of Goods Sold:
Direct Material (9,000 units x $ 30) 270,000
Direct Labor (9,000 units x $ 19) 171,000
Variable Factory overhead (9,000 units x $ 6) 54,000
Fixed Factory overhead (9,000 units x $ 5) 45,000

Manufacturing Cost / Cost of Goods Manufactured 540,000

Add: Finished goods (at start) (2,000 units x $60) 120,000
Total Finished goods available for Sale 660,000
Less: Finished goods (at end) (3,500 units x $ 60) (210,000)

COST OF GOODS SOLD 450,000

Adjustment of Fixed (over) / under (1,000 units x $5)

applied Factory overhead ($50,0000 - $ 45,000) 5,000

COST OF GOODS SOLD (Actual) (455,000)

Gross Profit 145,000

Less: Marketing and administrative Expenses
Variable marketing and admin. Expenses (7,500 units x $4) 30,000
Fixed marketing and admin. Expenses (10,000 units x $2.80) 28,000 (58,000)

OPERATING INCOME 87,000

Per unit cost = Cost of Goods manfactured / Nos. of units produced

= Rs. 540,000 / 9,000 units
= Rs. 60 OR (30+ 19 + 6 + 5)
 Format of Income statement under Direct costing

Sales (7500 units x Rs. 80) 600,000

Less: Cost of Goods Sold (Variable):
Direct Material (9000 units x Rs. 30) 270,000
Direct Labor (9000 units x Rs. 19) 171,000
Variable Factory overhead (9000 units x Rs. 6) 54,000

Variable Cost of Goods Manufactured 495,000

Add: Finished goods (at start) (2000 units x 55) 110,000
Total Finished goods available at variable cost 605,000
Less: Finished goods (at end) (3500 units x 55) (192,500)

COST OF GOODS SOLD (Variable) (412,500)

GROSS CONTRIBUTION MARGIN 187,500

Less: Variable Marketing and administrative
Expenses (7500 units x 4) (30,000)

CONTRIBUTION MARGIN 157,500

Less: Fixed Expenses:

Fixed Factory overhead (10,000 units x 5) 50,000
Fixed Marketing and Adminstrative expenses (10,000 units x 2.80) 28,000 (78,000)
OPERATING INCOME 79,500
Required no. 3: Reconcilation Statement of Operating Income:
Method # 1:
Operating Income:
Absorption Costing 87,000
Direct Costing 79,500
Difference 7,500
Inventory Changes:
Absorption Costing (Increase) (210,000 - 120,000) 90,000
Direct Costing (Increase) (192,500 - 110,000) 82,500
Difference in inventory 7,500
Method #2:
Diffence in Inventory in units
Ending Inventory (in units) 3,500 Units
Opening Inventory (in units) 2,000 Units

Difference in units (Decrease in FG) 1,500 Units

Fixed FOH rate 5
7,500

Net income - Absorption costing 87,000

Net income - Direct costing 79,500
7,500
Method # 3:
Net income - Absorption costing 87,000
Less: Increase in FG, increase in unit cost by 5
(1500 units x Rs 5) (7,500)

Net income - Direct Costing 79,500

2*3

Format of Income statement under Absorption costing

Sales (30,000 units x Rs. 15)

Less: Cost of Goods Sold:
Variable manufacturing cost (24,000 units x 5) 120,000
Fixed manufacturing cost (24,000 units x 6) 144,000

Cost of Goods Manufactured 264,000

Add: Finished goods (at start) (10,000 units x 11) 110,000
Total Finished goods available 374,000
Less: Finished goods (at end) (4,000 units x 11) (44,000)

COST OF GOODS SOLD 330,000

Adjustment of Fixed (over) / under

applied Factory overhead (6,000 units x 6) 36,000

COST OF GOODS SOLD (Actual)

Gross Profit
Less: Marketing and administrative Expenses

OPERATING INCOME

Per unit cost = Cost of Goods manfactured / Nos. of units produced

= Rs. 264,000 / 24,000 units
= Rs. 11
 Format of Income statement under Direct costing

Sales (30,000 units x Rs. 15)

Less: Cost of Goods Sold:
Variable manufacturing cost (24,000 units x 5) 120,000

Variable Cost of Goods Manufactured 120,000

Add: Finished goods (at start) (10,000 units x 5) 50,000
Total Finished goods available at variable cost 170,000
Less: Finished goods (at end) (4,000 units x 5) (20,000)

COST OF GOODS SOLD (Variable)

GROSS CONTRIBUTION MARGIN

Less: Variable Marketing and administrative
Expenses (7,500 units x 4)

CONTRIBUTION MARGIN

Less: Fixed Expenses:

Fixed Factory overhead 180,000
Fixed Marketing and Adminstrative expenses 25,000
OPERATING INCOME
Required no. 3: Reconcilation Statement of Operating Income:

Operating Income:
Absorption Costing
Direct Costing
Difference

Inventory Changes:
Absorption Costing (Increase)
Direct Costing (Increase)
Difference in inventory

Diffence in Inventory in units

Ending Inventory (in units)
Opening Inventory (in units)

Difference in units
Fixed FOH rate
 450,000

(366,000)

84,000
(27,000)

57,000
 450,000

(150,000)

300,000

(2,000)

298,000

(205,000)
93,000
w*2000
Format of Income statement under Absorption costing

Sales (19,000 units x Rs. 67) 1,273,000

Less: Cost of Goods Sold:
Variable manufacturing cost (20,000 units x 42.50) 850,000
Fixed manufacturing cost (20,000 units x 10.50) 210,000

Cost of Goods Manufactured 1,060,000

Total Finished goods available 1,060,000
Less: Finished goods (at end) (1,000 units x 53) (53,000)

COST OF GOODS SOLD (1,007,000)

Gross Profit 266,000

Less: Marketing and administrative Expenses
Fixed marketing and admin expenses 150,000
Variable marketing and admin expenses 114,000 (264,000)

OPERATING INCOME 2,000

 Format of Income statement under Direct costing

Sales (19,000 units x Rs. 67) 1,273,000

Less: Cost of Goods Sold:
Variable manufacturing cost (20,000 units x 42.50) 850,000

Variable Cost of Goods Manufactured 850,000

Total Finished goods available at variable cost 850,000
Less: Finished goods (at end) (1,000 units x 42.5) (42,500)

COST OF GOODS SOLD (Variable) (807,500)

GROSS CONTRIBUTION MARGIN 465,500

Less: Variable Marketing and administrative
Expenses (19,000 units x Rs 5) 95,000
Overtime premium - Admin Expenses 19,000 (114,000)

CONTRIBUTION MARGIN (NET) 351,500

Less: Fixed Expenses:

Fixed Factory overhead 210,000
Fixed Marketing and Adminstrative expenses 150,000 (360,000)
OPERATING INCOME Net Loss (8,500)
W-1: Calculation of variable cost per unit:

1. Direct material used:

Raw material (at start) 80,000
Add: Purchases during the year 460,000
Raw material available for use 540,000
Less: Raw material (at end) (40,000)

Direct material used 500,000

2. Direct labour used:

Total factory wages 359,000

Less: Overtime premium - Management Exp (19,000)

Direct labour used 340,000

3. Factory overhead:
Outstanding FOH (at end) 6,000
Add: Payment made 18,000
24,000
Less: Outstanding FOH (at start) (4,000)

Factory overhead used 20,000

Less: Fixed Standing charges (10,000)
10,000

Total Manufacturing Cost / COGM 850,000

Per unit cost = Cost of Goods manfactured / Nos. of units produced

= Rs. 850,000 / 20,000 units
= Rs. 42.50
W-1 Fixed Cost:
Fixed manufacturing Expenses:
a) Water & Electric - Standing charges 10,000
b) Factory Depreciation 80,000
c) Lease rental payment - Factory (140,000 - 20,000) 120,000
Fixed Manufacturing Cost 210,000

Fixed Admin and Marketing Expenses:

a) Advertisement cost 30,000
b) Salaries Expenses 120,000
Fixed Admin and Marketing Expenses 150,000

Required no. 3: Reconcilation Statement of Operating Income:

Operating Income:
Absorption Costing
Direct Costing
Difference

Inventory Changes:
Absorption Costing (Increase)
Direct Costing (Increase)
Difference in inventory

Diffence in Inventory in units

Ending Inventory (in units)
Opening Inventory (in units)

Difference in units
Fixed FOH rate
22-5
Working:

Equivalent Production Unit:

Material Conversion
Units completed and transferred out 66,000 66,000
Less: Units in process (at start) - all units (2,000) (2,000)

Units started and completed during the period 64,000 64,000

Add: Units in process (at start) - work this period - 1,000

Add: Units in process (at end) - work this period 1,000 500
EQUIVALENT PRODUCTION UNIT 65,000 65,500

ABSORPTION
Cost of Goods Sold:

Direct Material (65,000 units x Rs. 8) (260,000 x $2) 520,000

Direct Labor (65,500 units x Rs. 9) 589,500
Variable Factory overhead (65,500 units x Rs. 4) 262,000
Fixed Factory overhead (65,500 units x Rs 2) 131,000
MANUFACTURING COST 1,502,500

Add: Work in process (at start)

Direct material (2000 units x 100% x 8) 16,000
Conversion (2000 units x 50% x 15) 15,000 31,000
Total Work in process 1,533,500

Less: Work in process (at end)

Direct material (1000 units x 100% x 8) 8,000
Conversion (1000 units x 50% x 15) 7,500 (15,500)

COST OF GOODS MANUFACTURED 1,518,000

Add: Finished goods (at start) (1000 units x 23) 23,000

Total Finished goods available 1,541,000
Less: Finished goods (at end) (1500 units x 23) (34,500)

COST OF GOODS SOLD 1,506,500

Adjustment of (over) / under

applied Factory overhead 5,700

COST OF GOODS SOLD (Actual) 1,512,200

W-1 Adjustment of Under applied FOH
Actual FOH 398,700
Applied FOH 393,000

UNDER APPLIED FOH 5,700

OR Fixed FOH
Applied FOH 131,000
Actual FOH 135,000
Difference 4,000

Variable FOH
Applied FOH 262,000
Actual FOH 263,700
Difference 1,700
5,700

Format of Income statement under Direct costing

DIRECT
Cost of Goods Sold (Variable)

Direct Material (65,000 units x Rs. 8) 520,000

Direct Labor (65,500 units x Rs. 9) 589,500
Variable Factory overhead (65,500 units x Rs. 4) 262,000

Variable Manufacturing Cost 1,371,500

Add: Work in process (at start)

Direct material (2000 units x 100% x 8) 16,000
Conversion (2000 units x 50% x 13) 13,000 29,000

Total Work in process 1,400,500

Less: Work in process (at end)

Direct material (1000 units x 100% x 8) 8,000
Conversion (1000 units x 50% x 13) 6,500 (14,500)

COST OF GOODS MANUFACTURED (VARIABLE) 1,386,000

Add: Finished goods (at start) (1000 units x 21) 21,000

Total Finished goods available at variable cost 1,407,000
Less: Finished goods (at end) (1500 units x 21) (31,500)

COST OF GOODS SOLD (Variable) 1,375,500

Add: Adjustment of variable FOH cost / Controllable variance / Variable Variance

Applied FOH 262,000
Actual FOH 263,700
Difference 1,700
COST OF GOODS SOLD (Variable) 1,377,200
Absorption
Sales 1,600,000
Less: COGS (1,512,200)

Gross profit / Net income 87,800

Direct

Sales 1,600,000
Less: COGS (Variable) (1,377,200)
Gross C.M / Net C.M. 222,800

Less: Fixed cost (135,000)

87,800

Required no. 3: Reconcilation Statement of Operating Income:

Operating Income:
Absorption Costing 87,800
Direct Costing 87,800
Difference -

Work in Process Inventory Changes:

Absorption Costing (Decrease) (31,000 - 15,500) 15,500 Dec
Direct Costing (Decrease) (29,000 - 14,500) 14,500 Dec
Difference in inventory 1,000 Dec

Finished Goods inventory changes:

Absorption Costing (Increase) (23,000 - 34,500) (11,500) Inc

Direct Costing (Increase) (21,000 - 31,500) (10,500) Inc
(1,000) Inc

Dec 1,000
Inc (1,000)
-
22-7
COGS (absorption) 1,308,700
COGS (Direct) 1,180,000

REQUIRED NO:1
Equivalent Production Unit:
Material Conversion
Units completed and transferred out 110,000 110,000
Less: Units in process (at start) - all units (10,000) (10,000)

Units started and completed during the period 100,000 100,000

Add: Units in process (at start) - work this period - 6,000 (10000 x 3/5)

Add: Units in process (at end) - work this period 15,000 5,000 (15000 x 1/3)
EQUIVALENT PRODUCTION UNIT 115,000 111,000

REQUIRED NO: 2
Nos. of units sold:
Units
Finished goods (at start) 20,000
Add: Units completed during the year 110,000
Total Finished goods available for sale 130,000

Less: Finished goods (at end) (12,000)

Nos. of units sold 118,000

REQUIRED NO: 3
Direct Costing Absorption
Direct Material (2 lbs x 1.50) 3.00 3.00
Direct Labor 6.00 6.00
Variable FOH 1.00 1.00
Fixed FOH - 1.10
TOTAL STANDARD PER UNIT COST 10.00 11.10

REQUIRED NO. 4:

OVER / UNDER applied Fixed FOH

Actual Fixed FOH 121,000

Applied Fixed FOH (111,000 units x 1.10) 122,100

OVER APPLIED FIXED FOH 1,100

 Cost of Goods Sold - ABSORPTION
Direct Material (115,000 units x Rs. 3) 345,000
Direct Labor (111,000 units x Rs. 6) 666,000
Variable Factory overhead (111,000 units x Rs. 1) 111,000
Fixed Factory overhead (111,000 units x Rs. 1.10) 122,100
MANUFACTURING COST 1,244,100

Add: Work in process (at start)

Direct material (10,000 units x 100% x 3) 30,000
Conversion (10,000 units x 2/5 x 8.10) 32,400 62,400

Total Work in process 1,306,500

Less: Work in process (at end)

Direct material (15,000 units x 100% x 3) 45,000
Conversion (15,000 units x 1/3 x 8.10) 40,500 (85,500)
COST OF GOODS MANUFACTURED 1,221,000

Add: Finished goods (at start) (20,000 units x 11.10) 222,000

Total Finished goods available 1,443,000
Less: Finished goods (at end) (12,000 units x 11.10) (133,200)

COST OF GOODS SOLD 1,309,800

Adjustment of (over) / under
applied Fixed Factory overhead (W-3) (1,100)
COST OF GOODS SOLD (Actual) 1,308,700

DIRECT
Cost of Goods Sold (Variable)

Direct Material (115,000 units x Rs. 3) 345,000

Direct Labor (111,000 units x Rs. 6) 666,000
Variable Factory overhead (111,000 units x Rs. 1) 111,000

Variable Manufacturing Cost 1,122,000

Add: Work in process (at start)

Direct material (10,000 units x 100% x 3) 30,000
Conversion (10,000 units x 2/5 x 7) 28,000 58,000

Total Work in process 1,180,000

Less: Work in process (at end)

Direct material (15,000 units x 100% x 3) 45,000
Conversion (15,000 units x 1/3 x 7) 35,000 (80,000)
COST OF GOODS MANUFACTURED (VARIABLE) 1,100,000

Add: Finished goods (at start) (20,000 units x 10) 200,000

Total Finished goods available at variable cost 1,300,000
Less: Finished goods (at end) (12,000 units x 10 (120,000)
COST OF GOODS SOLD (Variable) 1,180,000
INCOME STATEMENT:

ABSORPTION COSTING:
Sales (118,000 units x Rs. 20) 2,360,000
Less: Cost of Goods sold: (1,308,700)
Gross Profit 1,051,300
Less: Operating expenses -
NET INCOME (Absorption Costing) 1,051,300

Direct Costing 7,700

Sales (118,000 units x Rs. 20) 2,360,000
Less: Variable cost of goods sold (1,180,000)
GROSS CONTRIBUTION MARGIN / NET C.M 1,180,000

Less: Fixed factory overhead (121,000)

NET INCOME (Direct Costing) 1,059,000

RECONCILATION STATEMENT:
Work in process:
(at start) (10,000 units x 2/5 x 1.1) 4,400
(at end) (15,000 units x 1/3 x 1.1) 5,500
Increase in amount 1,100 Increase

Finished goods:
(at start) (20,000 units x 100% x 1.1) 22,000
(at end) (12,000 units x 100% x 1.1) 13,200
Decrease in amount 8,800 Decrease
7,700

Work in process:
(at start) (10,000 units x 2/5) 4,000
(at end) (15,000 units x 1/3) 5,000
Increase in units 1,000

Finished goods:
(at start) (20,000 units x 100%) 20,000
(at end) (12,000 units x 100%) 12,000
Decrease in units 8,000

Net Decrease 7,000

Fixed FOH rate 1.10

7,700