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Chap 4 Activity Answer Key

This document provides an example of calculating income statements under absorption and variable costing methods. For Company AAA, absorption costing shows income before tax of $549,000 while variable costing shows $634,000. For Company VVV, absorption costing shows income before tax of $67,900 while variable costing shows $64,000. Under both methods, beginning and ending inventory amounts are considered to reconcile the income differences.

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88 views4 pages

Chap 4 Activity Answer Key

This document provides an example of calculating income statements under absorption and variable costing methods. For Company AAA, absorption costing shows income before tax of $549,000 while variable costing shows $634,000. For Company VVV, absorption costing shows income before tax of $67,900 while variable costing shows $64,000. Under both methods, beginning and ending inventory amounts are considered to reconcile the income differences.

Uploaded by

cykablyat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PCOA 13

Cost Accounting and Control


Activity 2
Answer Key
Problem 1
Required:
1. Prepare the Income Statement under Absorption and Variable costing.

Annual Capacity 20000

Fixed Manufacturing Cost 340,000.00


Fixed Overhead Rate = 340,000/20,000 17.00
Variable Product Cost 12.00
Total Product Cost 29.00

Period Cost
Variable/ unit 5.00
Fixed 106,000.00

2019
Units Produced 55,000.00 55,000.00
Beg. Inventory 15,000.00 15,000.00
End. Inventory 10,000.00 10,000.00
Units Sold 60,000.00 60,000.00
Selling price per unit 35.00

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
1
Absorption Costing
AAA Corporation
Income Statement
For the Year Ended December 2019

Sales 2,100,000.00
Cost of Goods Sold
Inventory, Beg 435,000.00
Cost of Goods Manufactured 1,595,000.00
Inventory, end* 290,000.00
COGS 1,740,000.00 or (60,000*29)
Gross Margin 360,000.00
Volume Variance** 595,000.00
Adjusted Gross Margin 955,000.00
Operating expense
Fixed 106,000.00
Variable 300,000.00
406,000.00
Income Before Tax 549,000.00

Variable Costing
AAA Corporation
Income Statement
For the Year Ended December 2019

Net Sales 2,100,000.00


Variable COGS 720,000.00
Product Contribution Margin 1,380,000.00
Variable Period Cost 300,000.00
Total Contribution Margin 1,080,000.00
Fixed Costs
Product Fixed Cost 340,000.00
Period Fixed Cost 106,000.00
446,000.00
Income before Tax 634,000.00

Reconciliation of Income
Absorption Income 549,000.00
Add: Beg. Inv. 255,000.00 (15,000 units x 17)
Less: End. Inv 170,000.00 (10,000 units x 17)
Variable Income 634,000.00

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
2
Problem 2

Annual Capacity 6,000.00

Fixed Manufacturing Cost 18,000.00


Fixed Overhead Rate = 18,000/6,000 3.00
Variable Product Cost 2.00
Total Product Cost 5.00

Period Cost
Variable/ unit 3.00
Fixed 12,000.00

Units Produced 6,000.00


Beg. Inventory
End. Inventory Finished Goods 1,300.00
Units Sold 4,700.00
Selling price per unit 25.00

Absorption Costing
VVV Corporation
Income Statement
For the Year Ended December 2019

Sales 117,500.00
Cost of Goods Sold
Inventory, Beg -
Cost of Goods Manufactured 30,000.00
Inventory, end* 6,500.00
COGS 23,500.00 or (4,700 x 5)
Gross Margin 94,000.00
Volume Variance**
Adjusted Gross Margin 94,000.00
Operating expense
Fixed 12,000.00
Variable 14,100.00
26,100.00
Income Before Tax 67,900.00

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
3
Variable Costing
VVV Corporation
Income Statement
For the Year Ended December 2019

Net Sales 117,500.00


Variable COGS 9,400.00
Product Contribution Margin 108,100.00
Variable Period Cost 14,100.00
Total Contribution Margin 94,000.00
Fixed Costs
Product Fixed Cost 18,000.00
Period Fixed Cost 12,000.00
30,000.00
Income before Tax 64,000.00

Reconciliation of Income
Absorption Income 67,900.00
Beg. Inv. -
End. Inv 3,900.00 (1,300 units x 3)
Variable Income 64,000.00

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
4

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