Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred. Unit product Cost for two years

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Answer 1

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

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KIARA LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: ASSETS Property, plant and equipment (cost) Accumulated depreciation Long-term investments Inventory Accounts receivable Company tax paid in advance Bank EQUITY AND LIABILITIES 2024 2023 R R 2 490 000 1 620 000 (630 000) 660 000 1 050 000 1 230 000 30 000 (480 000) 450 000 1 290 000 900 000 0 750 000 660 000 5 580 000 4 440 000 Ordinary share capital 2 700 000 2 000 000 Retained income 1 500 000 1 158 000 Long-term loan from Kip Bank (15%) 900 000 1 000 000 Accounts payable 480 000 228 000 Company tax payable 0 54 000 5 580 000 4 440 000 ADDITIONAL INFORMATION All purchases and sales are on credit. Interim dividends paid during the year amounted to R150 750. Credit terms of 3/10 net 60 days are granted by creditors.

Accounting Question

REQUIRED Study the information given below and answer the following questions. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes. 5.1 Calculate the Accounting Rate of Return on average investment of the second alternative (expressed to two decimal places). 5.2 Determine which of the two investment opportunities the company should choose by calculating the Net Present Value of each alternative. Your answer must include the calculation of the present values and NPV. 5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The management of Bentall Incorporated is considering two investment opportunities: (5 marks) (9 marks) (6 marks) The first alternative involves the purchase of a new machine for R900 000 which…

Answer 2

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Answer 6

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 7

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 8

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 9

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 10

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Answer 11

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Answer 12

Expert Solution & Answer

Answer 13

Expert Solution & Answer

Answer 14

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Answer 15

Ch. 6.A - Prob. 1E Ch. 6.A - EXERCISE 6A-2 Super-Variable Costing and Variable...Ch. 6.A - Prob. 3E Ch. 6.A - PROBLEM 6A-4 Super-Variable Costing and Variable...Ch. 6.A - Prob. 5P Ch. 6 - Prob. 1Q Ch. 6 - Are selling and administrative expenses treated as...Ch. 6 - Explain how fixed manufacturing overhead costs are...Ch. 6 - What are the arguments in favor of treating fixed...Ch. 6 - What are the arguments in favor of treating fixed...

Net Operating Income under variable costing system for 2 years

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Chapter 6 Solutions