Question 2: Variable costing and absorption costing Details of a company's first two years of operations are shown: Year 1 Sales @ £25 Opening stock in units Units produced Units sold Fixed selling administrative expenses Direct materials Direct labour £1,000,000 0 and £110,000 The company's unit product cost is computed as follows: (£180,000/45,000 units) Unit product cost 45000 40000 Variable manufacturing overhead Fixed manufacturing overhead Year 2 £1,250,000 5000 45000 50000 £110,000 £ 4 7 4 16 Required: a) Prepare a profit and loss account for each year using Absorption costing. b) Using the profit under Absorption costing, calculate what the profit would be each year if the company used Marginal costing. c) Why is Marginal costing which is used by Management accounting incompatible with Financial accounting?

Question 2: Variable costing and absorption costing Details of a company's first two years of operations are shown: Year 1 Sales @ £25 Opening stock in units Units produced Units sold Fixed selling administrative expenses Direct materials Direct labour £1,000,000 0 and £110,000 The company's unit product cost is computed as follows: (£180,000/45,000 units) Unit product cost 45000 40000 Variable manufacturing overhead Fixed manufacturing overhead Year 2 £1,250,000 5000 45000 50000 £110,000 £ 4 7 4 16 Required: a) Prepare a profit and loss account for each year using Absorption costing. b) Using the profit under Absorption costing, calculate what the profit would be each year if the company used Marginal costing. c) Why is Marginal costing which is used by Management accounting incompatible with Financial accounting?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

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Step 2: Part (a) Profit and loss accounts using absorption costing for years 1 and 2:

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Step 3: Part (b) Computation of the marginal costing profits:

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Step 4: Part (c) Why is marginal costing incompatible with Financial accounting:

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During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $62 per unit) Year 1 $ 1,178,000 Gross margin 513,000 Selling and administrative 303,000 expenses* Net operating $ income Cost of goods sold (@$35 665,000 1,015,000 per unit) Year 2 210,000 $ 1,798,000 783,000 333,000 $ 450,000 *$3 per unit variable; $246,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 ÷ 24,000 units) Absorption costing unit product cost $9 9 2 15 $ 35
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Dowell Company produces a single product. Its Income under variable costing for its first two years of operation follow. Variable Costing Income Income Units Units produced Units sold Additional Information a. Sales and production data for these first two years follow. Year 1 $ 43,000 Year 1 44,300 33,000 Direct materials Direct labor Variable overhead Fixed overhead ($430,000/43,000 units) Total product cost per unit Variable costing income Year 2 b. The company's $32 per unit product cost (for both years) using absorption costing consists of the following. Absorption costing income 44,300 55,600 Year 2 $ 610,000 Required: Prepare a statement to convert variable costing income to absorption costing income for both years. (Leave no cells blank - be certain to enter "0" wherever required.) $6 Dowell Company Convert Variable Costing Income to Absorption Costing Income Year 1 $ 9 7 10 $32 43,000 $ Year 2 610,000
Units in beginning inventory 0 Units produced 18,000 Units sold 15,000 Units in ending inventory 3,000 Variable costs per unit: Direct materials $ 270 Direct labor $ 380 Variable manufacturing overhead $ 48 Variable selling and administrative $ 21 Fixed costs: Fixed manufacturing overhead $ 650,000 Fixed selling and administrative $ 480,000 1.Absorption costing unit product cost: 2.Variable costing unit product cost:
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Trio Company reports the following information for its first year of operations. $ 20 per unit $ 21 per unit $ 9 per unit $ 263,250 per year 20,250 units 15,500 units 4,750 units Direct materials Direct labor Variable overhead Fixed overhead Units produced Units sold Ending finished goods inventory Exercise 19-2 (Algo) Computing unit and inventory costs under variable costing LO P1 Assume instead that Trio Company uses variable costing. 1. Compute the product cost per unit using variable costing. 2. Determine the cost of ending finished goods inventory using variable costing. 3. Determine the cost of goods sold using variable costing. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the product cost per unit using variable costing. Product cost per unit of finished goods using: Total product cost per unit $ Variable costing 0 per unit