Norwood Corporation is considering changing its method of inventory valuation from absorption costing to direct costing and engaged you to determine the effect of the proposed change on the 2018 financial statements. The corporation manufactures Sink, which is sold for P20 per unit. Marsh is added before processing starts and labor and overhead are added evenly during the manufacturing process. Production capacity is budgeted at 100,000 units of Sink annually. The standard costs per unit of Sink are: Variable Manufacturing P1.00 Overhead Marsh, 2 kilos P3.00 Labor 6.00 Fixed Manufacturing P1.10 Overhead A process cost system is used employing standard costs. Variances from standard costs are now charged or credited to cost of goods sold. If direct costing were adopted only variances resulting from variable costs would be charged or credited to cost of goods sold. Jan 1 Dec 31 Finished goods in units 20,000 12,000 Actual fixed manufacturing overhead during the year was P121,000. There were no variances between standard variable costs and actual variable costs during the year. There was no work-in-process in the beginning and end of the period. REQUIRED: 1. Schedule of standard unit costs under direct and absorption costing 2. Comparative statement of costs of goods sold using direct costing and absorption costing.
Norwood Corporation is considering changing its method of inventory valuation from absorption costing to direct costing and engaged you to determine the effect of the proposed change on the 2018 financial statements. The corporation manufactures Sink, which is sold for P20 per unit. Marsh is added before processing starts and labor and overhead are added evenly during the manufacturing process. Production capacity is budgeted at 100,000 units of Sink annually. The standard costs per unit of Sink are: Variable Manufacturing P1.00 Overhead Marsh, 2 kilos P3.00 Labor 6.00 Fixed Manufacturing P1.10 Overhead A process cost system is used employing standard costs. Variances from standard costs are now charged or credited to cost of goods sold. If direct costing were adopted only variances resulting from variable costs would be charged or credited to cost of goods sold. Jan 1 Dec 31 Finished goods in units 20,000 12,000 Actual fixed manufacturing overhead during the year was P121,000. There were no variances between standard variable costs and actual variable costs during the year. There was no work-in-process in the beginning and end of the period. REQUIRED: 1. Schedule of standard unit costs under direct and absorption costing 2. Comparative statement of costs of goods sold using direct costing and absorption costing.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Norwood Corporation is considering changing its method of inventory valuation from absorption costing
to direct costing and engaged you to determine the effect of the proposed change on the 2018 financial
statements.
The corporation manufactures Sink, which is sold for P20 per unit. Marsh is added before processing
starts and labor and overhead are added evenly during the manufacturing process. Production capacity
is budgeted at 100,000 units of Sink annually. The standard costs per unit of Sink are:
Marsh, 2 kilos
P3.00
Variable Manufacturing P1.00
Overhead
Labor
6.00
Fixed Manufacturing
P1.10
Overhead
A process cost system is used employing standard costs. Variances from standard costs are now charged
or credited to cost of goods sold. If direct costing were adopted only variances resulting from variable
costs would be charged or credited to cost of goods sold.
Jan 1
Dec 31
Finished goods in units
20,000
12,000
Actual fixed manufacturing overhead during the year was P121,000. There were no variances between
standard variable costs and actual variable costs during the year. There was no work-in-process in the
beginning and end of the period.
REQUIRED:
1. Schedule of standard unit costs under direct and absorption costing
2. Comparative statement of costs of goods sold using direct costing and absorption costing.
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