Reference no: EM132634320
Problem 1: Based on the information below, Reconcile the variable costing and absorption costing net operating incomes.
ABSORPTION COSTING
Year 1
unit cost
Variable costs = 11 + 6 + 3 = 20
Fixed costs = overhead = 120,000 / 10,000 = 12
Total per unit cost = 20 + 12 = 32
Sales (8,000 x 50).............................400,000
COS (8,000 x 32).............................(256,000)
Gross Profit............................................144,000
Variable S&A(8,000 x 4).................(32,000)
Fixed S&A...............................................(70,000)
Net income.......................................42,000
Year 2
Unit cost
Variable costs = 11 + 6 + 3 = 20
Fixed costs = overhead = 120,000 / 6,000 = 20
Total per unit cost = 20 + 20 = 40
Sales (8,000 x 50).............................400,000
COS (8,000 x 40).............................(320,000)
Gross Profit............................................80,000
Variable S&A(8,000 x 4).................(32,000)
Fixed S&A...............................................(70,000)
Net loss.......................................... (22,000)
VARIABLE COSTING
Year 1
Unit cost
Variable costs = 11 + 6 + 3 = 20
Variable S&A = 4
Total cost per unit = 20+4 = 24
Sales (8,000 x 50).............................400,000
COS (8,000 x 24).............................(192,000)
Gross Profit............................................208,000
Fixed OH...............................................(120,000)
Fixed S&A...............................................(70,000)
Net income.......................................18,000
Year 2
Unit cost is the same as year 1
Sales (8,000 x 50).............................400,000
COS (8,000 x 24).............................(192,000)
Gross Profit............................................208,000
Fixed OH...............................................(120,000)
Fixed S&A...............................................(70,000)
Net income.......................................18,000