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CHAPTER 4
VARIABLE COSTING
[Problem 1]
AC VC
1. Direct materials P1,200 P1,200
Direct labor 1,400 1,400
Var OH 500 500
FxOH (P4,000,000/1,000) 4,000 -
Unit product costs P7,100 P3,100
2. AC VC
Sales (800 x P12,000) P9,600,000 P9,600,000
Var CGS (800 x P3,100) (2,480,000) (2,480,000)
Fixed OH (800 x P4,000) (3,200,000) (4,000,000)
Variable exp (800 x P200) ( 160,000) ( 160,000)
Fixed exp (2,000,000) (2,000,000)
Operating income P1,760,000 P 960,000
3. AC VC
Ending inventory
(200 x P7,100) P1,420,000
(200 x P3,100) P620,000
[Problem 2]
1a. AC VC
Direct materials P15 P15
Direct labor 7 7
Var OH 2 2
Fx OH (P640,000/40,000) 16 -
Unit product costs P40 P24
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1b. AC VC
Sales (35,000 x P60) P2,100,000 P2,100,000
Var CGS (35,000 x P24) ( 840,000) ( 840,000)
Fx OH (35,000 x P16) ( 560,000) ( 640,000)
Var exp (35,000 x .05 x P60 ) ( 105,000) ( 105,000)
Fx exp ( 560,000) ( 560,000)
Operating income P 35,000 P( 45,000)
1c. AC VC
Ending inventory
(5,000 x P40) P200,000
(5,000 x P24) P120,000
[Problem 3]
1. Unit var cost (P80,000/40,000) P2.00 [or P1 + P0.80 + P0.20]
Unit Fx OH (P75,000 / 50,000) 1.50
Unit cost - absorption costing P3.50
2. Sales P200,000
Less: CGS (40,000 x P3.50) 140,000
Gross profit 60,000
Less: Operating expenses (P30,000 + P20,000) 50,000
Net income P 10,000
[Problem 4]
1. Variable Costing Income Statements
May June
Sales P1,040,000 P1,360,000
Less Variable CGS:
Beginning inventory 0 88,000
Add: Var CGM (30,000 x P22) 660,000 660,000
TGAS 660,000 748,000
Less: Ending inventory 88,000 0
Variable CGS 572,000 748,000
Manufacturing Margin 468,000 612,000
Less: Variable express (26,000 x P3) 78,000
(34,000 x P3) ____ ___ __ 102,000
Contribution Margin _390,000 510,000
Less Fixed costs and expenses:
Fixed overhead 240,000 240,000
Fixed expenses __ 180,000 __ 180,000
Total 420,000 420,000
Net Income (loss) P( 30,000) P 90,000
[Problem 5]
1. AC VC
Direct materials P50 P50
Direct labor 36 36
Var Overhead 4 4
Fx Overhead (P240,000/6,000 units) __ 40 ____
Unit inventoriable costs P130 P 90
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3. AC VC
Var CGS (5,200 x P130 ) P676,000 P468,000 (5,200 x P90)
Fx overhead - 240,000
Net Mat. Var – unfavorable 12,000 UF 12,000 UF
Net DL variance - favorable ( 5,000) F ( 5,000) F
Net Var OH Var - favorable ( 2,500) F ( 2,500) F
Capacity variance - unfavorable 20,000 UF ______-_
Cost of good sold - at actual P700,500 P712,500
4. AC VC
Sales (5,200 x P 300) P1,560,000 P1,560,000
Costs of good sold - at actual ( 700,000) ( 712,500)
Var S and A expenses
(P1,560,000 x 12%) ( 187,200) ( 187,200)
Fixed S and A expenses (160,000) ( 160,000)
Operating income P 512,300 P 500,300
[Problem 7]
[Problem 8]
1.a. Unit Fx OH Rate = [P6,000/(20,000 – 16,000)] = P1.50
b. Bud. Fx OH = (20,000 units x P1.50) = P30,000
c. Jan. 1 Nov.30
Total CGS P212,000 P233,300
- Fx OH 30,000 33,000 (30,000 x 110%)
Var CGS P182,000 P200,300
d. Operating Income:
Absorption Variable Change
Sales P294,000 P294,800 P -
Var CGS (200,300) (200,300) -
Fx CGS ( 33,000) ( 30,000) 3,000
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[Problem 9]
1. MASS COMPANY
Comparative Income Statement
For the Years Ended, December 31, 2005 and 2006
2005 . 2006 .
Absorption Variable Absorption Variable
Costing Costing Costing Costing
Sales (25,000 x P40) P1,000,000 P1,000,000 P1,000,000 P1,000,000
Less: Variable CGS
(25,000 x P23.50) 587,500 587,500 587,500 587,500
Fx CGS (25,000 x P4) 100,000 - 100,000 -
Volume variance 20,000 UF _______ __12,000 UF - .
Total 707,500 587,500 699,500 587,500
Gross profit/Mfg. Margin 292,500 412,500 300,500 412,500
Less: Variable Expenses
(25,000 x P1.20) - 30,000 - 30,000
Gross profit/
Contribution margin 292,500 382,500 300,500 382,500
Less: Variable expenses 30,000 - 30,000 -
Fx overhead - 120,000 - 120,000
Fx expenses 190,000 190,000 190,000 190,000
Total 220,000 310,000 220,000 310,000
Net Income P 72,500 P 72,500 P 80,500 P 72,500
Supporting Analysis:
a. Unit fixed manufacturing costs = P120,000 / 30,000 units =
P4.00
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b. 2002 2003
Normal capacity 30,000 units 30,000 units
Less: Actual capacity 25,000
(25,000 + 3,000 – 1000) ______ 27,000
Under(Over) absorbed capacity 5,000 UF 3,000 UF
x Unit Fx OH rate P4 P4
Volume Variance - UF(F) P20,000 UF P12,000 UF
[Problem 10]
1.a. The decrease in net income under absorption costing is P405,000,
computed as follows:
2005 Income as reported P900,000
2006 Income as corrected 495,000
Decrease in net income P405,000
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c. The true operating income under absorption costing in 2006 should be:
Sales P11,200,000
Var CGS (1,000,000 x P5.40) (5,400,000)
Fixed CGS (300,000 x P3.00) P 900,000
(700,000 x P3.30) 2,310,000 (3,210,000)
Volume variance (495,000) UF
Operating expenses (1,600,000)
Net income P 495,000
2005 2006
Sales P9,000,000 P11,200,000
Variable CGS (900,000 x P5) (4,500,000)
(1,000,000 x P5.40) (5,400,000)
Fixed overhead (3,000,000) (3,300,000)
Operating expenses (1,500,000) (1,600,000)
Net Income P 0 P 900,000
[Problem 11]
a. 1. Units Costs
High 7,000 P 29,000
Low 3,000 17,000
Difference 4,000 P 12,000
2. High Low
Total costs P 29,000 P 17,000
Less: Variable costs
(7,000 x P3) 21,000 9,000
Fixed costs P 8,000 P 8,000
b. SCATTERGRAPH
Cost (thousands)
Y = a +bx
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P32
30
28
26
24
22 Y1
20
18
16 Y2
14
12
10
a=8
0
1 2 3 4 5 6 7 8 9
10
X2 X1
Units (thousands)
X1 = 4,750 Y1 = P22,000
X2 = 2,750 Y2 = P16,000
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[Problem 11]
a.
SCATTERGRAPH
Cost (thousands)
P16
15
14
13
12
11
10
9
8
7
6
a=5
4
3
2
1
0 Units (thousands)
1 2 3 4 5 6 7 8 9 10
X2 X1
X1 = 6,000 Y1 = P12,000
X2 = 3,000 Y2 = 8,500
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[Problem 12]
a. High-Low Method
Variable Fixed
Units Costs Cost @ P4 Costs
High 9,000 P 40,000 P 36,000 P 4,000
Low 2,000 12,000 8,000 4,000
Difference 7,000 P 28,000
P28,000
VC Rate = = P4 / unit
7,000
b. SCATTERGRAPH
Costs (thousands)
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P44
Y^
40
36
32 Y1
28
24
20 Y2
16
12
a=8
0 Units (thousands)
1 2 3 4 5 6 7 8 9 10
X2 X1
a = P8,000
Ỳ = P8,000 + 3.43x
c. Least-squares method
X Y XY X2
4,000 P 22,000 88,000,000 16,000,000
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146,000,000 = 0 + b 42,000,000
146,000,000
b = 42,000,000
b = 3.48
Therefore:
Y = 8.110 + 3.48x
[Problem 13]
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a.
X Y XY X2
800 P 270,000 216,000,000 640,000
500 200,000 100,000,000 250,000
1,000 310,000 310,000,000 1,000,000
400 190,000 76,000,000 160,000
600 240,000 144,000,000 360,000
900 290,000 261,000,000 810,000
4,200 1,500,000 1,107,000,000 3,220,000
57,000,000 = 0 + b 280,000
b = 203.57
Therefore:
b. Y = 107.501 + 203.57x
[Problem 14]
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[Problem 15]