absorption & direct costing - 2011
TRANSCRIPT
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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
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)
NET CONTRIBUTION MARGIN xxxx
Less: Fixed Expenses:
Fixed Factory overhead xxx
Format of Income statement under Absorption costing
Format of Income statement under Direct costing
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Fixed Marketing and Adminstrative expenses xxx (xxx)
OPERATING INCOME xxxxxx
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3rd. QuarterFG (at start) 40,000Add: 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) 40,000Add: Produciton (100,000 x 50%) 50,000
Total FG available 90,000Less: Sold units (100,000 x 80%) (80,000)
FG (at end) 10,000
1st Quarter:FG (at start) 10,000Add: Produciton (100,000 x 110%) 110,000
Total FG available 120,000Less: Sold units (100,000 x 80%) (80,000)
FG (at end) 40,000
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Sales (7,500 units x $80)
Less: Cost of Goods Sold:
Direct Material used ($ 30 x 9,000 units) 270,000
Direct Labor used ($19 x 9,000 units) 171,000
Variable Factory overhead ($6 x 9,000 units) 54,000
Fixed Factory overhead ($5 x 9,000 units) 45,000
Cost of Goods Manufactured 540,000
Add: Finished goods (at start) (2,000 units x $60) 120,000
Total Finished goods available 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 ($50,000 - $45,000) 5,000
applied Factory overhead (1,000 units x $5)
COST OF GOODS SOLD (Actual)
Gross Profit
Less: Marketing and administrative Expenses
Variable marketing and admin. Expenses ($4 x 7,500 units) 30,000
Fixed marketing and admin. Expenses ($2.80 x 10,000 units) 28,000
OPERATING INCOME
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 Absorption costing
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Sales (7500 units x Rs. 80)
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)
GROSS CONTRIBUTION MARGIN
Less: Variable Marketing and administrative
Expenses (7500 units x 4)
NET CONTRIBUTION MARGIN
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
OPERATING INCOME
Required no. 3: Reconcilation Statement of Operating Income:
Diffence in Inventory in units
Ending Inventory (in units) 3,500
Format of Income statement under Direct costing
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Opening Inventory (in units) 2,000
Difference in units (Decrease in FG) 1,500
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
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600,000
(455,000)
145,000
(58,000)
87,000
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600,000
(412,500)
187,500
(30,000)
157,500
(78,000)
79,500
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Sales (20,000 units x$15)
Less: Cost of Goods Sold:
Variable manufacturing cost (30,000 x $5)
Fixed Factory overhead ($6 x 30,000 units)
Cost of Goods Manufactured
Add: Finished goods (at start) -Total Finished goods available
Less: Finished goods (at end) (10,000 units x $ 11)
COST OF GOODS SOLD
Gross Profit
Less: Marketing and administrative Expenses
Fixed marketing and admin. Expenses
OPERATING INCOME
Per unit cost = Cost of Goods manfactured / Nos. of units produced
= Rs. 540,000 / 9,000 units
= Rs. 60 OR (30+ 19 + 6 + 5)
Sales (20,000 units x$15)
Less: Variable cost of goods sold
Variable manufacturing cost (30,000 x $5)
Cost of Goods Manufactur
Add: Finished goods (at start) -
Total Finished goods available
Less: Finished goods (at end) (10,000 units x $ 5)
COST OF GOODS SOLD - Va
Contribution Margin
Less: Marketing and administrative Expenses
Fixed Factory overhead
Fixed marketing and admin. Expenses
NET LOSS
Format of Income statement under Absorption c
Format of Income statement under Direct cost
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Required no. 3: Reconcilation Statement of Operating Income:
Method # 1:
Operating Income:
Absorption Costing
Direct Costing
DifferenceInventory Changes:
Absorption Costing (Increase) (210,000 - 120,000)
Direct Costing (Increase) (192,500 - 110,000)
Difference in inventory
Method #2:
Diffence in Inventory in units
Ending Inventory (in units) 3,500
Opening Inventory (in units) 2,000
Difference in units (Decrease in FG) 1,500
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
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300,000
150,000
180,000
330,000
-330,000
(110,000)
(220,000)
80,000
(25,000)
55,000
300,000
150,000
d (Variable) 150,000
-
150,000
(50,000)
riable (100,000)
200,000
180,000
25,000 (205,000)
(5,000)
sting
ing
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55,000
#REF!
#REF!
90,000
82,500
7,500
Units
Units
Units
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Sales (30,000 units x Rs. 15)
Less: Cost of Goods Sold:
Variable manufacturing cost (24,000 units x 5)
Fixed manufacturing cost (24,000 units x 6)
Cost of Goods Manufactured
Add: Finished goods (at start) (10,000 units x 11)
Total Finished goods available
Less: Finished goods (at end) (4,000 units x 11)
COST OF GOODS SOLD
Adjustment of Fixed (over) / under
applied Factory overhead (6,000 units x 6)
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
Sales (30,000 units x Rs. 15)
Less: Cost of Goods Sold:
Variable manufacturing cost (24,000 units x 5)
Variable Cost of Goods Manufactured
Add: Finished goods (at start) (10,000 units x 5)
Total Finished goods available at variable cost
Less: Finished goods (at end) (4,000 units x 5)
COST OF GOODS SOLD (Variable)
GROSS CONTRIBUTION MA
Less: Variable Marketing and administrativeExpenses
CONTRIBUTION MARGIN
Less: Fixed Expenses:
Fixed Factory overhead
Fixed Marketing and Adminstrative expenses
OPERATING INCOME
Format of Income statement under Absorption costing
Format of Income statement under Direct costing
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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
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Diffence in Inventory in units
Ending Inventory (in units)
Opening Inventory (in units)
Difference in units
Fixed FOH rate
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450,000
120,000
144,000
264,000
110,000
374,000
(44,000)
330,000
36,000
(366,000)
84,000
(27,000)
57,000
450,000
120,000
120,000
50,000
170,000
(20,000)
(150,000)
GIN 300,000
(2,000)
298,000
180,000
25,000 (205,000)
93,000
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Sales (19,000 units x Rs. 67)Less: Cost of Goods Sold:
Variable manufacturing cost (20,000 units x 42.50)
Fixed manufacturing cost (20,000 units x 10.50)
Cost of Goods Manufactured
Total Finished goods availableLess: Finished goods (at end) (1,000 units x 53)
COST OF GOODS SOLD
Gross ProfitLess: Marketing and administrative Expenses
Fixed marketing and admin expensesVariable marketing and admin expenses
OPERATING INCOME
Sales (19,000 units x Rs. 67)Less: Cost of Goods Sold:
Variable manufacturing cost (20,000 units x 42.50)
Variable Cost of Goods Manufactured
Total Finished goods available at variable costLess: Finished goods (at end) (1,000 units x 42.5)
COST OF GOODS SOLD (Variable)
GROSS CONTRIBUTION MARGINLess: Variable Marketing and administrative
Expenses (19,000 units x Rs 5) Overtime premium - Admin Expenses
Format of Income statement under Absorption
Format of Income statement under Direct co
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CONTRIBUTION MARGIN (NET)
Less: Fixed Expenses:Fixed Factory overheadFixed Marketing and Adminstrative expenses
OPERATING INCOME Net Loss
W-1: Calculation of variable cost per unit:
1. Direct material used:
Raw material (at start) 80,000Add: Purchases during the year 460,000
Raw material available for use 540,000Less: Raw material (at end) (40,000)
Direct material used
2. Direct labour used:
Total factory wages 359,000Less: Overtime premium - Management Exp (19,000)
Direct labour used
3. Factory overhead:Outstanding FOH (at end) 6,000
Add: Payment made 18,000
24,000Less: Outstanding FOH (at start) (4,000)
Factory overhead used 20,000Less: Fixed Standing charges (10,000)
Total Manufacturing Cost / COGM
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:
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a) Water & Electric - Standing chargesb) Factory Depreciationc) Lease rental payment - Factory (140,000 - 20,000)
Fixed Manufacturing Cost
Fixed Admin and Marketing Expenses:a) Advertisement costb) Salaries ExpensesFixed Admin and Marketing Expenses
Required no. 3: Reconcilation Statement of Operating Income:
Operating Income:Absorption CostingDirect Costing
Difference
Inventory Changes:Absorption Costing (Increase)
Direct Costing (Increase)
Difference in inventory
Diffence in Inventory in unitsEnding Inventory (in units)Opening Inventory (in units)
Difference in unitsFixed FOH rate
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1,273,000
850,000
210,000
1,060,000
1,060,000(53,000)
(1,007,000)
266,000
150,000 114,000 (264,000)
2,000
1,273,000
850,000
850,000
850,000(42,500)
(807,500)
465,500
95,00019,000 (114,000)
osting
ting
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351,500
210,000150,000 (360,000)
(8,500)
500,000
340,000
10,000
850,000
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10,00080,000
120,000
210,000
30,000120,000150,000
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Working:
Equivalent Production Unit:
Material
Units completed and transferred out 66,000Less: Units in process (at start) - all units (2,000)
Units started and completed during the period 64,000
Add: Units in process (at start) - work this period -
Add: Units in process (at end) - work this period 1,000EQUIVALENT PRODUCTION UNIT 65,000
ABSORPTION
Direct Material (65,000 units x Rs. 8)Direct Labor (65,500 units x Rs. 9)Variable Factory overhead (65,500 units x Rs. 4)Fixed Factory overhead (65,500 units x Rs 2)
MANUFACTURING COST
Add: Work in process (at start)
Direct material (2000 units x 100% x 8) 16,000Conversion (2000 units x 50% x 15) 15,000
Total Work in process
Less: Work in process (at end)Direct material (1000 units x 100% x 8) 8,000Conversion (1000 units x 50% x 15) 7,500
COST OF GOODS MANUFACTURED
Add: Finished goods (at start) (1000 units x 23)Total Finished goods availableLess: Finished goods (at end) (1500 units x 23)
COST OF GOODS SOLD
Adjustment of (over) / underapplied Factory overhead
Cost of Goods Sold:
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COST OF GOODS SOLD (Actual)
Adjustment of Under applied FOH
Actual FOH 398,700
Applied FOH 393,000
UNDER APPLIED FOH 5,700
Fixed FOH
Applied FOH 131,000Actual FOH 135,000
Difference
Variable FOHApplied FOH 262,000Actual FOH 263,700
Difference
ECT
Direct Material (65,000 units x Rs. 8)Direct Labor (65,500 units x Rs. 9)Variable Factory overhead (65,500 units x Rs. 4)
Format of Income statement under Direct cos
Cost of Goods Sold (Variable)
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Variable Manufacturing Cost
Add: Work in process (at start)Direct material (2000 units x 100% x 8) 16,000Conversion (2000 units x 50% x 13) 13,000
Total Work in process
Less: Work in process (at end)Direct material (1000 units x 100% x 8) 8,000Conversion (1000 units x 50% x 13) 6,500
COST OF GOODS MANUFACTURED (VARIABLE)
Add: Finished goods (at start) (1000 units x 21)Total Finished goods available at variable costLess: Finished goods (at end) (1500 units x 21)
COST OF GOODS SOLD (Variable)
Add: Adjustment of variable FOH cost / Controllable variance / Variable VarApplied FOH 262,000Actual FOH 263,700
Difference
COST OF GOODS SOLD (Variable)
AbsorptionSales 1,600,000Less: COGS (1,512,200)
Gross profit / Net income
Direct
Sales 1,600,000
Less: COGS (Variable) (1,377,200)Gross C.M / Net C.M. 222,800
Less: Fixed cost (135,000)
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Required no. 3: Reconcilation Statement of Operating Income:
Operating Income:Absorption CostingDirect Costing
Difference
Work in Process Inventory Changes:
Absorption Costing (Decrease) (31,000 - 15,500) Direct Costing (Decrease) (29,000 - 14,500)
Difference in inventory
Finished Goods inventory changes:
Absorption Costing (Increase) (23,000 - 34,500) Direct Costing (Increase) (21,000 - 31,500)
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Conversion
66,000(2,000)
64,000
1,000
50065,500
(260,000 x $2) 520,000589,500262,000131,000
1,502,500
31,000
1,533,500
(15,500)
1,518,000
23,0001,541,000(34,500)
1,506,500
5,700
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1,512,200
4,000
1,7005,700
520,000589,500262,000
ing
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1,371,500
29,000
1,400,500
(14,500)
1,386,000
21,0001,407,000(31,500)
1,375,500
ance
1,700
1,377,200
87,800
87,800
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87,80087,800
-
15,500 Dec14,500 Dec
1,000 Dec
(11,500) Inc(10,500) Inc
(1,000) Inc
Dec 1,000Inc (1,000)
-
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COGS (absorption) 1,308,700COGS (Direct) 1,180,000
REQUIRED NO:1
Equivalent Production Unit:
Material Conversion
Units completed and transferred out 110,000 110,000Less: 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
Add: Units in process (at end) - work this period 15,000 5,000EQUIVALENT PRODUCTION UNIT 115,000 111,000
REQUIRED NO: 2
Nos. of units sold:
Units
Finished goods (at start) 20,000Add: 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 3.00Direct Labor 6.00 6.00Variable FOH 1.00 1.00
Fixed FOH - 1.10TOTAL STANDARD PER UNIT COST 10.00 11.10
REQUIRED NO. 4:
OVER / UNDER applied Fixed FOH
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Actual Fixed FOH 121,000Applied Fixed FOH (111,000 units x 1.10) 122,100
OVER APPLIED FIXED FOH 1,100
Direct Material (115,000 units x Rs. 3)Direct Labor (111,000 units x Rs. 6)Variable Factory overhead (111,000 units x Rs. 1)Fixed Factory overhead (111,000 units x Rs. 1.10)
MANUFACTURING COST
Add: Work in process (at start)Direct material (10,000 units x 100% x 3) 30,000Conversion (10,000 units x 2/5 x 8.10) 32,400
Total Work in process
Less: Work in process (at end)Direct material (15,000 units x 100% x 3) 45,000Conversion (15,000 units x 1/3 x 8.10) 40,500
COST OF GOODS MANUFACTURED
Add: Finished goods (at start) (20,000 units x 11.10)
Total Finished goods available
Less: Finished goods (at end) (12,000 units x 11.10)
COST OF GOODS SOLDAdjustment of (over) / underapplied Fixed Factory overhead (W-3)
COST OF GOODS SOLD (Actual)
ECT
Direct Material (115,000 units x Rs. 3)Direct Labor (111,000 units x Rs. 6)Variable Factory overhead (111,000 units x Rs. 1)
Cost of Goods Sold - ABSORPTION
Cost of Goods Sold (Variable)
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Variable Manufacturing Cost
Add: Work in process (at start)Direct material (10,000 units x 100% x 3) 30,000Conversion (10,000 units x 2/5 x 7) 28,000
Total Work in process
Less: Work in process (at end)Direct material (15,000 units x 100% x 3) 45,000Conversion (15,000 units x 1/3 x 7) 35,000
COST OF GOODS MANUFACTURED (VARIABLE)
Add: Finished goods (at start) (20,000 units x 10)
Total Finished goods available at variable costLess: Finished goods (at end) (12,000 units x 10
COST OF GOODS SOLD (Variable)
INCOME STATEMENT:
ABSORPTION COSTING:
Sales (118,000 units x Rs. 20) 2,360,000Less: 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) 2,360,000Less: 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
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Increase in amount 1,100
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 8,8007,700
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
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(10000 x 3/5)
(15000 x 1/3)
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345,000666,000111,000122,100
1,244,100
62,400
1,306,500
(85,500)
1,221,000
222,000
1,443,000
(133,200)
1,309,800
(1,100)
1,308,700
345,000666,000111,000
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1,122,000
58,000
1,180,000
(80,000)
1,100,000
200,000
1,300,000 (120,000)
1,180,000
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Increase
Decrease
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Sales 440,000
Less: Cost of Goods Sold:
Direct Material 60,000
Direct Labor 60,000
Variable Factory overhead 120,000
Fixed Factory overhead ($96,000 / 24,000 = $ 4 x 24,000 units) 96,000
Cost of Goods Manufactured 336,000
Add: Finished goods (at start) -
Total Finished goods available 336,000
Less: Finished goods (at end) (4,000 units x $ 14) (56,000)
COST OF GOODS SOLD 280,000
Adjustment of Fixed (over) / under
applied Factory overhead -
COST OF GOODS SOLD (Actual) (280,000
Gross Profit 160,000
Less: Marketing and administrative Expenses
Fixed marketing and admin. Expenses (70,000
OPERATING INCOME 90,000
Sales 440,000
Less: Cost of Goods Sold (Variable):
Direct Material 60,000
Direct Labor 60,000
Variable Factory overhead 120,000
Variable Cost of Goods Manufactured 240,000
Add: Finished goods (at start) -
Total Finished goods available at variable cost 240,000
Less: Finished goods (at end) (4,000 units x $10) (40,000)
COST OF GOODS SOLD (Variable) (200,000
GROSS CONTRIBUTION MARGIN 240,000
Less: Fixed Expenses:
Fixed Factory overhead (96,000)
Fixed Marketing and Adminstrative expenses (70,000) (166,000OPERATING INCOME 74,000
Income statement under Absorption costing
Income statement under Direct costing