The Absorption Costing Income Statement of a company is as follows: Normal Capacity in units 25,000 Sales in units 28,000 Production in units 27,000 Rs. Rs. Sales Revenue @ Rs. 50 per unit 14,00,000 Less : Manufacturing Cost of Goods Sold : Direct Material @ Rs. 5 each 1,35,000 Direct Labour @ Rs. 10 each 2,70,000 Variable Overhead @ Rs. 5 each 1,35,000 Fixed Manufacturing Cost at the Rate of Rs. 8 each 2,16,000 Total Manufacturing Cost 7,56,000 Add : Opening Stock : 3,000 units @ Rs. 28 each 84,000 8,40,000 Less : Closing Stock : 2,000 units @ Rs. 28 each 56,000 Cost of Goods Sold 7,84,000 Gross Profit before Adjustment 6,16,000 Add : Fixed Cost over Absorbed 16,000 Gross Profit after Adjustment 6,32,000 Less : Non-manufacturing Overhead : Fixed Office and Administrative 1,50,000 Variable Selling Overhead 56,000 Fixed Selling Overhead 92,000 Total Non-manufacturing Cost 2,98,000 Net Income 3,34,000 Additional Information: The fixed manufacturing and office overhead includes depreciation of Rs. 74,000. Required: (i) Break-even sales Rupees for the period. (ii) Sales volume in Rs. to earn a profit of Rs. 4,00,000. (iii) Cash break-even sales in Rupees.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
The Absorption Costing Income Statement of a company is as follows:
Normal Capacity in units
25,000
Sales in units
28,000
Production in units
27,000
Rs.
Rs.
Sales Revenue @ Rs. 50 per unit
14,00,000
Less :
Direct Material @ Rs. 5 each
1,35,000
Direct Labour @ Rs. 10 each
2,70,000
Variable Overhead @ Rs. 5 each
1,35,000
Fixed Manufacturing Cost at the Rate of Rs. 8 each
2,16,000
Total Manufacturing Cost
7,56,000
Add : Opening Stock : 3,000 units @ Rs. 28 each
84,000
8,40,000
Less : Closing Stock :
2,000 units @ Rs. 28 each
56,000
Cost of Goods Sold
7,84,000
Gross Profit before Adjustment
6,16,000
Add : Fixed Cost over Absorbed
16,000
Gross Profit after Adjustment
6,32,000
Less : Non-manufacturing Overhead :
Fixed Office and Administrative
1,50,000
Variable Selling Overhead
56,000
Fixed Selling Overhead
92,000
Total Non-manufacturing Cost
2,98,000
Net Income
3,34,000
Additional Information:
The fixed manufacturing and office overhead includes
Required:
(i) Break-even sales Rupees for the period.
(ii) Sales volume in Rs. to earn a profit of Rs. 4,00,000.
(iii) Cash break-even sales in Rupees.
[Ans: (i) Rs. 3,42,000 (ii) Rs. 7,89,285.71 (iii) Rs. 15,03,571.43 (iv) Rs. 6,57,142.86]
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