12.31.

N-1

Current Assets Current Assets

Cash 5,000
Accounts receivable 1,500
Raw Materials Inventory 258
Finished Goods Inventory 1,462
Total Current assets 8,220

Property, plant and equipment Property, plant and equipment

Land 1,200
Building and equipment 32,000
Accumulated depreciation (5,000)
Total PP&E 28,200

TOTAL ASSETS 36,420 TOTAL ASSETS

Current Liabilities Current Liabilities

Accounts Payable 1,200

Owner's Equity Owner's Equity

Retained Earnings 35,220

TOTAL LIABILITIES & OWNER'S EQUITY 36,420 TOTAL LIABILITIES & OWNER'S EQUITY
 12.31.N

Current Assets
Cash 4,166
Accounts receivable 1,500
Raw Materials Inventory 436
Finished Goods Inventory 1,754
Total Current assets 7,857

Property, plant and equipment

Land 1,200
Building and equipment 39,000
Accumulated depreciation (8,000)
Total PP&E 32,200

TOTAL ASSETS 40,057

Current Liabilities
Accounts Payable 1,412

Owner's Equity
Retained Earnings 38,645

TOTAL LIABILITIES & OWNER'S EQUITY 40,057

 1 2 3 4 Year

Units 1,000 1,200 1,500 2,000 5,700

Unit Selling Price 10.00 10.00 10.00 10.00 10.00

Budgeted Sales ($) 10,000 12,000 15,000 20,000 57,000

 1 2 3 4

Budgeted Sales 1,000 1,200 1,500 2,000

Desired ending inventory 240 300 400 240

Total needs 1,240 1,500 1,900 2,240

Less : beginning inventory 200 240 300 400

Units to be produced 1,040 1,260 1,600 1,840

Year

5,700

240

6,880

200

5,740
Plain t-shirts 4 (N-1) 1 2 3 4 Year

Units to be produced 1,040 1,260 1,600 1,840 5,740

Direct materials per unit 1 1 1 1 1

Production needs 1,040 1,260 1,600 1,840 5,740

Desired ending inventory 126 160 184 110 110

Total needs 1,166 1,420 1,784 1,950 5,850

Less : beginning inventory 60 126 160 184 60

Direct materials to be purchased 1,106 1,294 1,624 1,766 5,790

Unit cost (in $) 3 3 3 3 3

Total Purchase cost plain t-shirts (in $) 3,318 3,882 4,872 5,298 17,370

Ink 4 (N-1) 1 2 3 4 Year

Units to be produced 1,040 1,260 1,600 1,840 5,740

Direct materials per unit 5 5 5 5 5

Production needs 5,200 6,300 8,000 9,200 28,700

Desired ending inventory 630 800 920 530 530

Total needs 5,830 7,100 8,920 9,730 29,230

Less : beginning inventory 390 630 800 920 390

Direct materials to be purchased 5,440 6,470 8,120 8,810 28,840

Unit cost 0.20 0.20 0.20 0.20 0.20

Total Purchase cost ink (in $) 1,088 1,294 1,624 1,762 5,768

TOTAL DIRECT MATERIALS PURCHASE COST (in$) 4,406 5,176 6,496 7,060 23,138
Direct labour time per unit (in h.) 0.12
Average wage per hour (in $) 12

1 2 3 4

Units to be produced 1,040 1,260 1,600 1,840

Direct labour time per unit 0.12 0.12 0.12 0.12

Total labour hours needed 124.8 151.2 192.0 220.8

Average wage per hour 12 12 12 12

Total labour hours for salary paying 160 160 192.0 220.8

total direct labour cost 1,497.6 1,814.4 2,304.0 2,649.6

DL overtime considered as fixed overhead 422.4 105.6 192.0 364.8

1,920 2,496 3,014

Year

5,740

0.12

688.8

12

732.8

8,265.6 true number of hours & standard rate $12)

8,265.6
1,084.8
Variable overhead rate 5.00

1 2 3 4

Budgeted direct labour hours 124.8 151.2 192.0 220.8

Variable overhead rate 5.00 5.00 5.00 5.00

Budgeted variable overhead 624.0 756.0 960.0 1,104.0

Budgeted fixed overhead 1,972.4 1,655.6 1,742.0 1,914.8

Total overhead 2,596 2,412 2,702 3,019

Year

688.8

5.00

3,444.0

7,284.8

10,729
Unit cost computation

Direct material 4.00

Plain t-shirt 1.00
Ink 5.00

Direct Labour 1.44

Overhead 1.87
Variable 0.60
Fixed 1.27 Rate

Total unit cost 7.31

Finished goods : printed t-shirts 240

Unit cost 7.31
Ending FG inventory 1,754.19
= Budgeted fixed overhead / Budgeted direct labour hours
Variable S&A exp. Per unit 0.1

1 2 3 4 Year

Planned sales in units 1,000 1,200 1,500 2,000 5,700

Variable S&A exp. Per unit 0.1 0.1 0.1 0.1 0.1

Total variable expenses 100 120 150 200 570

Fixed S&A expenses

Salaries 1,460 1,460 1,460 1,460 5,840
Utilities 50 50 50 50 200
Advertising 120 200 300 500 1,120
Depreciation 200 200 200 200 800
Insurance 500 500
Total Fixed expenses 1,830 2,410 2,010 2,210 8,460

Total S&A expenses 1,930 2,530 2,160 2,410 9,030

Corporate tax rate 0.4

Absorption costing Variable costing

in $
Sales 57,000 variable expense per unit

less : COG sold 41,662 Sales

Gross Margin 15,338 Variable expense

+ Variable expense of product
S&A expenses 9,030 + Variable expense from S&A expense
Contribution margin
Operating Profit 6,308
fixed expense
less : financial expenses (600)
+ Manufacturing overhead fixed expense
Income before tax 5,708
+ S&A fixed expense
less : income tax 2,283
Income before interest & tax
Net income 3,425

Income before Interest & Ta 6,308

EBIT Variance between Absorption & Variable Costing 51

The different
here is the
fixed cost of
goods in
Why is there a difference ? inventory 51
 in $
0.6

57,000

34,998
nse of product 34,428
nse from S&A expense 570
22,002

15,745

g overhead fixed expense 7,285

8,460

interest & tax 6,257

Sales Purchases

Cash sales 0.25 Cash purchases 0.00

Credit sales 0.75 Credit purchases 1.00
Same Quarter 0.90 Same quarter 0.80
Following Q. 0.10 Prior quarter 0.20
Sales from prior Q. 20000.00 Purchases from Q.4 LY 6000.00

1 2 3 4

Begining cash 5000 2751 3573 5700

Collections
Cash sales 2,500 3,000 3,750 5,000
Credit sales
Current quarter 6,750 8,100 10,125 13,500
Prior quarter 1,500 750 900 1,125
Total cash available 15,750 14,601 18,348 25,325

Less disbursements
Raw materials
Current quarter 3,525 4,141 5,197 5,648
Prior quarter 1,200 881 1,035 1,299
Direct labour 1,498 1,814 2,304 2,650
Overhead 2,046 1,862 2,152 2,469
S&A 1,730 2,330 1,960 2,210
Income taxes 2,283
Equipment 7,000
Total disbursements 16,999 11,028 12,648 16,559

Minimum cash balance 2,000 2,000 2,000 2,000

Total cash needs 3,249 3,573 5,700 8,766

Excess (deficiency) of cash (1,249) 3,573 5,700 8,766

Financing
Borrowings 4,000
Repayments (4,000)
Interest (600)
Total financing 4,000 (4,600)

Ending cash balance 2,751 3,573 5,700 4,166

 Depreciations Income Tax 0

Overhead 550.00 Equipment 7000.00

S&A 200.00

Minimum cash balance 2000.00 Interest rate 0.15

Year

5000

14,250 14,250

38,475 38,475
4,275 4,275
62,000 74,025

18,510
4,416
8,266
8,529
8,230
2,283
7,000
57,234 57,234

2,000

4,766

4,766

4,000
(4,000)
(600)
(600)

4,166