Nuraz Sdn Bhd (NSB) manufactures modern vase in northern areas and the price per unit is RM50. Currently, company uses absorption costing and the owner is considering to change the reporting method to variable costing. Thus, he asked the accountant to show the difference in income using both methods. To do so, the accountant rely on the information below:   Production 70,000 units Beginning finished goods inventory 17,500 units Sales RM3,125,000 Direct materials RM840,000 Direct labor RM630,000 Variable manufacturing overhead RM280,000 Variable selling and administrative expenses RM700,000 Fixed manufacturing overhead RM350,000 Fixed selling and administrative RM700,000   REQUIRED:   1. Calculate ending finished goods inventory (in RM) using: Absorption costing.   Variable costing.   2. Without preparing income statement, calculate the different in income reported under absorption costing and variable costing.   3. The company expects to increase the number of inventory during next year. In this situation, explain which method will report greater income, and why.   4. Explain the usage of absorption costing and variable costing system.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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QUESTION 4 (TOPIC 8)

 

Nuraz Sdn Bhd (NSB) manufactures modern vase in northern areas and the price per unit is RM50. Currently, company uses absorption costing and the owner is considering to change the reporting method to variable costing. Thus, he asked the accountant to show the difference in income using both methods. To do so, the accountant rely on the information below:

 

Production

70,000 units

Beginning finished goods inventory

17,500 units

Sales

RM3,125,000

Direct materials

RM840,000

Direct labor

RM630,000

Variable manufacturing overhead

RM280,000

Variable selling and administrative expenses

RM700,000

Fixed manufacturing overhead

RM350,000

Fixed selling and administrative

RM700,000

 

REQUIRED:

 

1. Calculate ending finished goods inventory (in RM) using:

  • Absorption costing.

 

  • Variable costing.

 

2. Without preparing income statement, calculate the different in income reported under absorption costing and variable costing.

 

3. The company expects to increase the number of inventory during next year. In this situation, explain which method will report greater income, and why.

 

4. Explain the usage of absorption costing and variable costing system.

 

 

 

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