Management Services by Luzviminda S.

Payongayong
Y2006 edition

Chapter 6
I

II

TRUE OR FALSE
1 TRUE
2 TRUE
3 FALSE
4 TRUE
5 TRUE
6 FALSE
7 TRUE
8 FALSE
9 FALSE
10 TRUE

Variable Costing as a Tool to Management Planning

11
12
13
14
15
16
17
18
19
20

FALSE
TRUE
FALSE
TRUE
TRUE
TRUE
FALSE
TRUE
FALSE
TRUE

21
22
23
24
25
26
27
28

B
B
C
A
B
C
C
A
D
C

21
22
23
24
25
26
27
28
29

FALSE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
TRUE

MULTIPLE CHOICE QUESTIONS

1
2
3
4
5
6
7
8
9
10

D
D
A
C
D
B
D
A
B
A

11
12
13
14
15
16
17
18
19
20

A
D
A
B
D
A
A
B
B

III MULTIPLE CHOICE PROBLEMS

1 C

P26.00

P10 + P6 + P2 +(P480,000 / 60,000) =

26.00

2 B

P18.00

P10 + P6 + P2 =

18.00

3 C

P1,300,000

P26 X 50,000 units

4 A

P180,000

produced
sold
ending inventory

5 B

6 B

P80,000

P14,000

1,300,000.00
60,000 units
50,000 units
10,000 units

produced
60,000 units
sold
50,000 units
ending inventory
10,000 units
x P8.00 cost per unit
Factory overhed per unit = P480,000 / 60,000 units = P8.00
y2007
y2008
beginning
0
+ units produced
20
20
- units sold
-20
-16
= ending inventory
0
4
Sales
16 units at P11,000
cost of sales :
variable cost
fixed overhead
P30,000 / 20 units
units sold
gross profit
Less, operating expenses:
variable selling & administrative
fixed selling and administrative
Net income

7 C

P41,000

x P18.00 cost per unit

P125 x 16 =

Sales
24 units at P11,000
cost of sales :
variable cost
fixed overhead
P30,000 / 20 units
units sold
gross profit

180,000.00

80,000.00

y2009
4.00
20.00
-24
0
176,000.00
6,000.00
1,500.00
7,500.00
16

2,000.00
40,000.00

120,000.00
56,000.00

42,000.00
14,000.00

264,000.00
6,000.00
1,500.00
7,500.00
24

1 124031951.xls.ms_office Sheet1

180,000.00
84,000.00

Management Services by Luzviminda S. Payongayong

Y2006 edition
Less, operating expenses:
variable selling & administrative
fixed selling and administrative
Net income
8 A

P8,000

P125 x 24 =

Sales
16 units at P11,000
variable costs
cost of sales
selling & administrative

P47,000

6,000.00
125.00
6,125.00
16

30,000.00
40,000.00

Sales
24 units at P11,000
variable costs
cost of sales
selling & administrative

98,000.00
78,000.00

70,000.00
8,000.00
264,000.00

6,000.00
125.00
6,125.00
24

units sold
contribution margin
Less, fixed costs:
factory overhead
selling and administrative costs
Net income

10 D

43,000.00
41,000.00
176,000.00

units sold
contribution margin
Less, fixed costs:
factory overhead
selling and administrative costs
Net income
9 D

3,000.00
40,000.00

30,000.00
40,000.00

P17 & P16

variable cost per unit
fixed cost per unit
at 40,000 = P200,000 / 40,000
at 50,000 = P200,000 / 50,000
total cost per unit

11 D

P12 & P12

12 B

P390,000 & P430,000

Sales
40,000 units
total costs of sales
gross profit
Less Expenses
variable selling P2 per unit
fixed selling & administrative
total expenses
net income

13 A

P390,000 & P390,000

Sales
40,000 units
variable costs:
Cost of sales
Selling & administrative

147,000.00
117,000.00

70,000.00
47,000.00

Production
under 40,000 under 50,000
12.00
12.00
5.00
17.00

4.00
16.00

only variable manufacturing costs

contribution margin
less, Fixed expenses

Manufacturing
Selling & administrative

total expenses
net income
14 A

refer to number 12

15 B

Note There was no inventory at January 1, 2007.

P200 decrease Variable costing (P6 x 100 )
Absorption costing ( P8 x 100)
difference

Production
under 40,000 under 50,000
1,200,000.00
1,200,000.00
680,000.00
640,000.00
520,000.00
560,000.00
80,000.00
80,000.00
50,000.00
50,000.00
130,000.00
130,000.00
390,000.00
430,000.00
Production
under 40,000 under 50,000
1,200,000.00
1,200,000.00
480,000.00
480,000.00
80,000.00
80,000.00
560,000.00
560,000.00
640,000.00
640,000.00
200,000.00
200,000.00
50,000.00
50,000.00
250,000.00
250,000.00
390,000.00
390,000.00

600.00
800.00
(200.00)

16 C

P19.00

Cost per unit under AC

P5 + P 6 + P1 + (P21000/ 3000) = P19.00

17 A

P3,600

Net income per AC

Fixed Factory OH in EI (2,000 x [P18,500 /6,000])
Net income per VC

2 124031951.xls.ms_office Sheet1

7,800.00
(4,200.00)
3,600.00

Management Services by Luzviminda S. Payongayong

Y2006 edition
18 B

19 B

P4,000 loss

P4,000

Net income per AC

Less, Fixed Factory OH in EI [2,000 x (P18,000/6000)]
Net loss per VC
OR
Sales
Variable cost of sales (4000 x P5.00)
Variable Selling Expenses
Total variable costs
CM
Fixed costs manufacturing costs
Fixed selling
Total fixed costs
Net loss

P16.00

P4.00 + P2.00 + P10.00

21 A

P10.00

Cost per unit = [P4 + P2 + (P10 x 40%)]

22 D

(P2,000)

Net income per AC

Less, Fixed FOH in EI
Net income (loss) per VC

24 A

P36,000

40,000.00
20,000.00
4,000.00
24,000.00
16,000.00
18,000.00
2,000.00
20,000.00
(4,000.00)

Net income per VC

Add, Fixed FOH in EI [1,000 x (P12,000/6,000)]
Net income per AC
OR
Sales
Cost of sales
Production - variable
5,000 x P7
Production - fixed
(P12,000 / 6,000) x 5,000
Total variable costs
Gross Profit
Expenses: Fixed selling
Variable
Net loss

20 B

23 A

2,000.00
(6,000.00)
(4,000.00)

2,000.00
2,000.00
4,000.00
65,000.00
35,000.00
10,000.00
45,000.00
20,000.00
6,000.00
10,000.00

16,000.00
4,000.00
16.00

10.00
6,000.00
(8,000.00)
(2,000.00)

2,000 x P4.00

Fixed cost expensed:

From COGS
6,000 x P4.00
From sellingP18,000 x 2/3

24,000.00
12,000.00

P2,400 greater
Sales
(300 x P50)
Less, Cost of goods sold
Variable costs (300 x P10)
Fixed FOH (P6,000/500) x P300
Total
CM/GP
Less, Fixed Costs/Operating Exp.
Manufacturing fixed costs
Variable selling
Fixed selling
Total
Net income
Net income per AC
Net loss per VC
Net income per AC greater than Net income per VC

Absorption
Costing
15,000.00

3,000.00
3,000.00
12,000.00

3,000.00
3,600.00
6,600.00
8,400.00

6,000.00
2,000.00
4,500.00
12,500.00
(500.00)

2,000.00
4,500.00
6,500.00
1,900.00
1,900.00
(500.00)
2,400.00

25 B

P2,000

Ending inventory

26 C

P20,000

Net income per VC

Add, Fixed FOH in ending inventory (P22 -P12) x 1,000
Net income per AC

10,000.00
10,000.00
20,000.00

27 D

P20,000

Production
Sold
Ending Inventory

20,000.00

28 D

P25,000

200 x P10.00

Variable
Costing
15,000.00

12,500
10,000
2,500

2,000.00

x P8.00 per unit

Units in ending inventory

Cost per unit P8.00 + (P25,000/ 12,500) = P10

2,500
x 2,500 =

3 124031951.xls.ms_office Sheet1

25,000.00

Management Services by Luzviminda S. Payongayong

Y2006 edition

29 B

P117,500

Cost of sales 10,000 x P8.00 =

Selling & Administrative expense 12,500 x P3.00 =

30 A

P35,000

Cost of sales 10,000 x (P25,000 / 12,500)

Selling and Administrative expense

4 124031951.xls.ms_office Sheet1

80,000.00
37,500.00
117,500.00
20,000.00
15,000.00
35,000.00

Management Services
Y2006 edition

Chapter 6

by Luzviminda S. Payongayong

Variable Costing as a Tool to Management Planning

PROBLEMS
6.1

1 Using absorption costing

Direct material
Direct labor
Variable overhead
Fixed overhead
Total Production

(P108,000 / 12,000)

Absorption Costing Income statement

Sales
(10,000 x P110 )
Less, Cost of Sales
(10,000 x P54 )
Gross Profit
Less, Operating Expenses:
Selling & Administrative - Fixed
Selling & Administrative - Variable
Net income
2 Using variable costing
Direct material
Direct labor
Variable overhead
Total Production

30.00
12.00
3.00
9.00
54.00

1,100,000.00
540,000.00
560,000.00
200,000.00
40,000.00

30.00
12.00
3.00
45.00

Variable Costing Income statement

Sales
(10,000 x P110 )
Less, Variable costs:
Manufacturing costs
10,000 x P45
Selling & Administrative 10,000 x P4
Contribution margin
Less, Fixed costs:
Manufacturing costs
Selling & Administrative
Net income

1,100,000.00
450,000.00
40,000.00

108,000.00
200,000.00

3 Difference in net income

Per absorption costing
Per variable costing
Difference
(2,000 EI x P9 Fixed FFOH)
a
When production exceeds sales ( P > S ), net income per AC is greater than
net income per VC as there are Fixed FOH that are inventoried.

6.2

490,000.00
610,000.00

308,000.00
302,000.00

320,000.00
302,000.00
18,000.00

1 Cost per unit under Absorption costing (P90 + [ P450,000 / 20,000 units] ) = P112.50
Sales
17,000 x P200
3,400,000.00
Less, Cost of slaes
17,000 x P112.50
1,912,500.00
Gross Profit
1,487,500.00
Less, Expenses:
Variable selling & adm 17,000 x P22
374,000.00
Fixed selling & adm
500,000.00
874,000.00
Net income
613,500.00
2 Inventory at end

6.3

240,000.00
320,000.00

3,000 x P112.50

Variable costing method

337,500.00

Production at
30,000 cans
50,000 cans
Sales
( 30,000 at P15. per unit)
450,000.00
450,000.00
Less Variable costs - Production
30,000 x P7
210,000.00
210,000.00
Contribution margin
240,000.00
240,000.00

5 124031951.xls.ms_office Sheet2

Management Services
Y2006 edition
Less

by Luzviminda S. Payongayong

Fixed costs
Production
Selling & Administrative

150,000.00
25,000.00
175,000.00
65,000.00

Net income
6.4

Net income per Absorption costing

- FOH in EI [(P45,000 - P41,000) x (P225,000 / 45,000)]
Net income per Variable costing

150,000.00
25,000.00
175,000.00
65,000.00
62,000.00
20,000.00
42,000.00

6.5
Sales
Less, Variable costs:
Cost of sales
[P1,500,000 - (250,000 x P3.00)]
Operating expenses
Contribution margin
Less, Fixed costs:
Manufacturing costs (P1,500,000 - P750,000)
Operating expenses
Net income
6.6

1
ABSORPTION COSTING METHOD
Sales
Less, Cost of sales
Direct materials
Direct labor
Factory overhead
Total manufacturing costs
Less, cost of inventory for 2,000 units
(P136,000 / 16,500) x 2,000 units
Gross Profit
Less, Operating
Variable operating
expenses
expenses:
Selling and marketing expenses
General & Administrative expenses
Net income

2
VARIABLE COSTING METHOD
Sales
Less, Variable costs of sales
Direct materials
Direct labor
Factory overhead
Total manufacturing costs
Less, cost of inventory for 2,000 units
(P96,000 / 16,500) x 2,000 units
Manufacturing contribution margin
Less, Variable operating expenses:
Selling and marketing expenses
General & Administrative expenses
Final Contribution margin
Less, Fixed costs:
Factory overhead
Selling and marketing expenses
General & Administrative expenses
Net income
3
Net income per Variable costing
+
Fixed FOH in ending inventory 2,000 x (P40,000 /16,500)
=
Net income per absorption costing

2,000,000.00
750,000.00
125,000.00

750,000.00
100,000.00

875,000.00
1,125,000.00

850,000.00
275,000.00

174,000.00
44,000.00
36,000.00
56,000.00
136,000.00
16,484.85

20,000.00
12,000.00

119,515.15
54,484.85

32,000.00
22,484.85

174,000.00
44,000.00
36,000.00
16,000.00
96,000.00
11,636.36

10,000.00
2,000.00

40,000.00
10,000.00
10,000.00

84,363.64
89,636.36

12,000.00
77,636.36

60,000.00
17,636.36
17,636.36
4,848.48
22,484.84

The difference is due to the treatment in the Fixed FOH. The full amount of P40,000 was charged to the
revenues under variable costing while only P35,151.52 (P40,000 /16,500 x 14,500) was charged to the
revenues under the absorption costing. (P40,000 - P35,151.52)
6.7
Direct materials
Direct labor
Variable overhead

Variable
Costing
3.00
2.00
1.00

6 124031951.xls.ms_office Sheet2

Absorption
Costing
3.00
2.00
1.00

Management Services
Y2006 edition

1
2

by Luzviminda S. Payongayong

Fixed overhead
(P30,000 /100,000)
Total cost per unit
Ending inventory in units
Cost of ending inventory
Sales in units
Cost of sales
Sales
Less,
Cost of sales
Fixed factory overhead
Selling & Administrative -variable
Selling & Administrative -fixed
Total
Net income

6.8

1
2
+

6.9
1

6.00
25,000
150,000.00
75,000
450,000.00
2,100,000.00
450,000.00
300,000.00
75,000.00
160,000.00
985,000.00
1,115,000.00

3.00
9.00
25,000
225,000.00
75,000
675,000.00
2,100,000.00
675,000.00
75,000.00
160,000.00
910,000.00
1,190,000.00

Variable
Costing
80,000.00
100,000.00
72,000.00
252,000.00
12,000
21.00
10,000
210,000.00

Absorption
Costing
80,000.00
100,000.00
72,000.00
60,000.00
312,000.00
12,000
26.00
10,000
260,000.00
40,000.00
(10,000.00)
20,000.00
50,000.00

Direct materials
Direct labor
Factory overhead
- variable
Factory overhead
- fixed
Total cost
Units produced
cost per unit
Units sold
Cost of goods sold
Net income per variable costing
Fixed factory overhead in beginning inventory (P60,000/12,000) x 2,000
Fixed factory overhead in ending inventory (2,000 + 12,000 - 10,000) x P5.00
Net income per absorption costing

Absorption costing method

Sales
Less Cost of Sales
Beginning inventory
Add, Current costs:
Variable Manufacturing costs at P7.50
Fixed costs
Add, Current costs
Total Available for sale
Less, Ending inventory
Cost of sales
Gross profit
Selling and administrative expense
Net income
* 7,000 x (P200,000/20,000) = P70,000
** 2,000 x (P189,000/18,000) = P21,000

Variable costing method

Sales
Less, Variable costs
Cost of sales
Beginning inventory
Current costs
Available for sale
Ending inventory
Cost of sales
Variable expenses
(P45,000 x 40%)
Total variable costs
Contribution margin
Less, Fixed costs
Factory overhead
Selling and Administrative (P45,000 x 60%)

Year 1
260,000.00
-

Year 2
460,000.00
70,000.00

150,000.00
50,000.00
200,000.00
200,000.00
70,000.00
130,000.00
130,000.00
45,000.00
85,000.00

135,000.00
54,000.00
189,000.00
259,000.00
21,000.00
238,000.00
222,000.00
75,000.00
147,000.00

260,000.00

460,000.00

150,000.00
150,000.00
52,500.00
97,500.00
18,000.00
115,500.00
144,500.00

52,500.00
135,000.00
187,500.00
15,000.00 **
172,500.00
30,000.00 (P75,000 x 40%)
202,500.00
257,500.00

50,000.00
27,000.00

54,000.00
45,000.00 (P75,000 x 60%)

7 124031951.xls.ms_office Sheet2

**

Management Services
Y2006 edition

by Luzviminda S. Payongayong

Total fixed costs

Net income
* 7,000 x (P150,000/20,000) = P52,500
** 2,000 x (P135,000/18,000) = P15,000
3

Difference in Net income

Net income per absorption costing
Net income per variable costing
Difference
Fixed factory overhead in Ending inventory
Per absorption costing
Per variable costing
Fixed factory overhead in Beginning inventory
Per absorption costing
Per variable costing
Total Difference
OR
Net income per Absorption costing
+
Fixed factory overhead in beg. Inventory
Y1
Y2
7000 x P2.50
Fixed factory overhead in end. Inventory
Y1
7000 x P2.50
Y2
2000 x P3.00
Net income per Variable costing

6.10

1 Variable costing method

Sales (14,000 @ P45) (16,000 @ P45)
Less Variable costs
Cost of goods sold
Beginning inventory, at std., P25
Current costs at std., at P25
Total
Ending inventory, at std. P25
Variable cost of goods sold
Variable selling and Adm., Expenses
Total Variable costs
Contribution Margin

Less, Fixed Costs:

Factory overhead
Selling & Administrative Expenses
Total Fixed costs
Operating income
2 Absorption cosing method
Sales (14,000 @ P45) (16,000 @ P45)
Less Cost of goods sold
Beginning inventory, at std., P33*
Current costs at std., at P33
Total
Ending inventory, at std. P33
Variable cost of goods sold
Gross Profit at standard
Production volume variance - Fav (Unfav)**
Gross Profit at Actual
Less Operating Expenses:
Selling & Administrative Expenses
Operating income
* Standard costs :

Variable costs
Fixed costs (P120,000 / 15,000)

77,000.00
67,500.00

99,000.00
158,500.00

85,000.00
67,500.00
17,500.00

147,000.00
158,500.00
(11,500.00)

70,000.00
52,500.00
17,500.00

21,000.00
15,000.00
6,000.00

17,500.00

70,000.00
52,500.00
17,500.00
(11,500.00)

85,000.00

147,000.00

17,500.00
(17,500.00)
67,500.00

(6,000.00)
158,500.00

Year 1
630,000.00

Year 2
720,000.00

425,000.00
425,000.00
75,000.00
350,000.00
350,000.00
280,000.00

75,000.00
350,000.00
425,000.00
25,000.00
400,000.00
400,000.00
320,000.00

120,000.00
120,000.00
160,000.00

120,000.00
120,000.00
200,000.00

630,000.00

720,000.00

561,000.00
561,000.00
99,000.00
462,000.00
168,000.00
16,000.00
184,000.00

99,000.00
462,000.00
561,000.00
33,000.00
528,000.00
192,000.00
(8,000.00)
184,000.00

184,000.00

184,000.00

25.00
8.00
33.00

8 124031951.xls.ms_office Sheet2

Management Services
Y2006 edition

by Luzviminda S. Payongayong

** Production volume variance:

Year 1
17,000 - 15,000 x P8
Year 2
14,000 - 15,000 x P8

16,000.00
8,000.00

3 Reconciliation of net income

Net income per variable costing
Fixed factory overhead costs in:
Beginning inventory
Y 1
0
Y2
3000 x P8
Ending inventory
Y1
3000 x P8
Y2
1000 x P8
Net income per absorption costing

Year 1
160,000.00

Favorable
Unfavorable
Year 2
200,000.00

total
360,000.00

(24,000.00)
24,000.00
184,000.00

8,000.00
184,000.00

8,000.00
368,000.00

6.11
1 Standard costs
Direct materials
Direct labor
Variable overhead
Fixed overhead
2 Units sold* Sales
(20,000 + 110,000 - 12,000 )
Cost of goods sold
Less, Prod. volume variance (100,000 - 110,000 ) x P1.10
Cost of goods sold at actual

Variable
Costing
3.00
6.00
1.00
10.00
118,000.00
1,180,000.00
1,180,000.00

Absorption
Costing
3.00
6.00
1.00
1.10
11.10
118,000.00
1,309,800.00
(11,000.00) Fav.
1,298,800.00

6.12
Direct materials and direct labor
Factory overhead
Total Manufacturing costs
Units produced
Cost per unit
Ending finished goods in units
Cost of ending finished goods

500,000.00
100,000.00
600,000.00
1,000.00
600.00
200.00
120,000.00

6.13
Fixed manufacturing costs
Variable manufacturing costs
Direct materials
Direct labor
Total costs
Units produced
cost per unit
Units of ending inventory
cost of ending inventory

( a / b)
(c x d)

a
b
c
d
e

No. 1
44,000.00
12,000.00
30,000.00
24,000.00
110,000.00
2,200
50.00
300.00
15,000.00

No. 2
12,000.00
30,000.00
24,000.00
66,000.00
2,200
30.00
300.00
9,000.00

6.14
a

Absorption costing
Sales
Less, cost of goods sold
Beginning inventory
Current Production
Available for sale
Ending inventory
Gross Profit
Less Expenses
Net income

256,000.00

2,000 x P16

160,000.00
160,000.00
(32,000.00)

9 124031951.xls.ms_office Sheet2

128,000.00
128,000.00
80,000.00
48,000.00

Management Services
Y2006 edition
b

by Luzviminda S. Payongayong

Variable costing
Sales
Less, Cost of goods sold
Variable manufacturing costs
Less, Ending inventory
2,000 x P9.60
Contribution Margin
Less, Fixed costs:
Manufacturing costs
Selling & Administrative Expenses
Net income
OR
Net income per absorption costing
Fixed factory overhead in Ending inventory
(P6.40 x 2,000)
Net income per variable costing

256,000.00
96,000.00
(19,200.00)

64,000.00
80,000.00

10 124031951.xls.ms_office Sheet2

76,800.00
179,200.00

144,000.00
35,200.00
48,000.00
(12,800.00)
35,200.00