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Business Accounting Financial and Managerial Accounting

Income Statement: It is also known as profit and loss statement. It refers to that financial statement that is made to show the net income or loss that a company or a business has made by the end of a particular period. Variable Costing: It refers to the method of product costing in which the price of the product is calculated considering only the variable or direct costs or the cost that happened to occurred due to the product only. It is also called as marginal costing as it takes marginal costs while calculating the product cost. Absorption Costing: It refers to the method of product costing in which the price of the product is calculated considering all the fixed as well as the variable or direct costs. The valuation of closing inventory in this method is consists of both fixed and variable costs. 1. To prepare: Current year income statement for the company using variable costing. Solution: O.M. Company Income Statement (Variable Costing) Particulars Amount ($) Amount($) Sales ( 118 , 000 × $ 320 ) 37,760,000 Variable Cost for Opening Inventory (405,000) Direct Material ( 115 , 000 × $ 40 ) (4,600,000) Direct Labor ( 115 , 000 × $ 62 ) (7,130,000) Variable Production Cost (3,220,000) Variable Selling and Administration Cost (1,416,000) (16,771,000) Contribution Margin 20,989,000 Fixed Production Cost (7,400,000) Fixed Selling and Administration Cost (4,600,000) (12,000,000) Net Income 8,989,000 Table (1) Thus , the current year income for the company using variable costing is $8,989,000 . 2. To prepare: Current year income statement for the company using absorption costing. Solution: O.M. Company Income Statement (Absorption Costing) Particulars Amount ($) Amount($) Sales ( 118 , 000 × $ 320 ) 37,760,000 Variable Cost for Opening Inventory (405,000) Fixed Cost for Opening Inventory (240,000) Direct Material ( 115 , 000 × $ 40 ) (4,600,000) Direct Labor ( 115 , 000 × $ 62 ) (7,130,000) Variable Production Cost (3,220,000) Fixed Production Cost (7,400,000) (22,995,000) Gross Margin 14,765,000 Variable Selling and Administration Cost (1,416,000) Fixed Selling and Administration Cost (4,600,000) (6,016,000) Net Income 8,749,000 Table (2) Thus, the current year income for the company using absorption costing is $8,749,000 . 3. To explain: The difference between the incomes under absorption and variable costing. Solution: The income through variable costing does not includes the amount that has been charged previously in the valuation of opening inventory that is the fixed cost of opening inventory. The income through absorption costing includes the fixed cost of the opening inventory as well in the valuation of the opening inventory. The treatment of the past year‘s fixed cost is different in both costing methods, so, the difference between the incomes under two costing methods arises. Thus, the difference in treatment of past year‘s fixed cost is the reason behind the difference in the incomes under both costing methods .

Income Statement: It is also known as profit and loss statement. It refers to that financial statement that is made to show the net income or loss that a company or a business has made by the end of a particular period. Variable Costing: It refers to the method of product costing in which the price of the product is calculated considering only the variable or direct costs or the cost that happened to occurred due to the product only. It is also called as marginal costing as it takes marginal costs while calculating the product cost. Absorption Costing: It refers to the method of product costing in which the price of the product is calculated considering all the fixed as well as the variable or direct costs. The valuation of closing inventory in this method is consists of both fixed and variable costs. 1. To prepare: Current year income statement for the company using variable costing. Solution: O.M. Company Income Statement (Variable Costing) Particulars Amount ($) Amount($) Sales ( 118 , 000 × $ 320 ) 37,760,000 Variable Cost for Opening Inventory (405,000) Direct Material ( 115 , 000 × $ 40 ) (4,600,000) Direct Labor ( 115 , 000 × $ 62 ) (7,130,000) Variable Production Cost (3,220,000) Variable Selling and Administration Cost (1,416,000) (16,771,000) Contribution Margin 20,989,000 Fixed Production Cost (7,400,000) Fixed Selling and Administration Cost (4,600,000) (12,000,000) Net Income 8,989,000 Table (1) Thus , the current year income for the company using variable costing is $8,989,000 . 2. To prepare: Current year income statement for the company using absorption costing. Solution: O.M. Company Income Statement (Absorption Costing) Particulars Amount ($) Amount($) Sales ( 118 , 000 × $ 320 ) 37,760,000 Variable Cost for Opening Inventory (405,000) Fixed Cost for Opening Inventory (240,000) Direct Material ( 115 , 000 × $ 40 ) (4,600,000) Direct Labor ( 115 , 000 × $ 62 ) (7,130,000) Variable Production Cost (3,220,000) Fixed Production Cost (7,400,000) (22,995,000) Gross Margin 14,765,000 Variable Selling and Administration Cost (1,416,000) Fixed Selling and Administration Cost (4,600,000) (6,016,000) Net Income 8,749,000 Table (2) Thus, the current year income for the company using absorption costing is $8,749,000 . 3. To explain: The difference between the incomes under absorption and variable costing. Solution: The income through variable costing does not includes the amount that has been charged previously in the valuation of opening inventory that is the fixed cost of opening inventory. The income through absorption costing includes the fixed cost of the opening inventory as well in the valuation of the opening inventory. The treatment of the past year‘s fixed cost is different in both costing methods, so, the difference between the incomes under two costing methods arises. Thus, the difference in treatment of past year‘s fixed cost is the reason behind the difference in the incomes under both costing methods .

Financial and Managerial Accounting

Financial and Managerial Accounting

7th Edition

ISBN: 9781259726705

Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher: McGraw-Hill Education

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Chapter 19, Problem 6E

Chapter 19, Problem 8E

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Chapter 19 Solutions

Financial and Managerial Accounting

Ch. 19 - Prob. 1MCQ Ch. 19 - Prob. 2MCQ Ch. 19 - Prob. 3MCQ Ch. 19 - Prob. 4MCQ Ch. 19 - Prob. 5MCQ Ch. 19 - Prob. 1DQ Ch. 19 - Prob. 2DQ Ch. 19 - Prob. 3DQ Ch. 19 - Prob. 4DQ Ch. 19 - Prob. 5DQ

Ch. 19 - Prob. 6DQ Ch. 19 - Prob. 7DQ Ch. 19 - Prob. 8DQ Ch. 19 - Prob. 9DQ Ch. 19 - Prob. 10DQ Ch. 19 - Prob. 11DQ Ch. 19 - Prob. 12DQ Ch. 19 - Prob. 13DQ Ch. 19 - Prob. 14DQ Ch. 19 - Prob. 1QS Ch. 19 - Prob. 2QS Ch. 19 - Prob. 3QS Ch. 19 - Prob. 4QS Ch. 19 - Prob. 5QS Ch. 19 - Prob. 6QS Ch. 19 - Prob. 7QS Ch. 19 - Prob. 8QS Ch. 19 - Prob. 9QS Ch. 19 - Prob. 10QS Ch. 19 - Prob. 11QS Ch. 19 - Prob. 12QS Ch. 19 - Prob. 13QS Ch. 19 - Prob. 14QS Ch. 19 - Prob. 15QS Ch. 19 - Prob. 16QS Ch. 19 - Prob. 17QS Ch. 19 - Prob. 18QS Ch. 19 - Prob. 19QS Ch. 19 - Prob. 20QS Ch. 19 - Prob. 1E Ch. 19 - Prob. 2E Ch. 19 - Prob. 3E Ch. 19 - Prob. 4E Ch. 19 - Prob. 5E Ch. 19 - Prob. 6E Ch. 19 - Prob. 7E Ch. 19 - Prob. 8E Ch. 19 - Prob. 9E Ch. 19 - Prob. 10E Ch. 19 - Prob. 11E Ch. 19 - Prob. 12E Ch. 19 - Prob. 13E Ch. 19 - Prob. 14E Ch. 19 - Prob. 15E Ch. 19 - Prob. 16E Ch. 19 - Prob. 1PSA Ch. 19 - Prob. 2PSA Ch. 19 - Prob. 3PSA Ch. 19 - Prob. 1PSB Ch. 19 - Prob. 2PSB Ch. 19 - Prob. 3PSB Ch. 19 - Prob. 19SP Ch. 19 - BTN 19-1 Apple’s ending inventory amounts (in $...Ch. 19 - Prob. 2BTN Ch. 19 - Prob. 3BTN Ch. 19 - Prob. 4BTN Ch. 19 - Prob. 5BTN Ch. 19 - Prob. 6BTN Ch. 19 - Prob. 7BTN Ch. 19 - Prob. 8BTN Ch. 19 - Prob. 9BTN

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