1) calculation of unit product cost:
|
|
Absorption costing |
variable costing |
| 1 |
Direct material |
$30 |
$30 |
| 2 |
Direct labour |
$14 |
$14 |
| 3 |
variable manufacturing overhead |
$4 |
$4 |
| 4 |
fixed manufacturing overhead(1280000/40000) |
$32 |
- |
| 5 |
unit product cost |
$80 |
$48 |
2)
a) Income statement under Absorption costing:
| Particulars |
Amount |
Amount |
| Sales(35000×$120) |
|
$4200000 |
| Less: COGS: |
|
|
| Opening inventory |
- |
|
| Add: cost of goods manufactured(40000×80) |
$3200000 |
|
| Cost of goods available for sales |
$3200000 |
|
| Less:closing inventory ((40000-35000)×80) |
$400000 |
$2800000 |
| Gross profit(4200000-2800000) |
|
$1400000 |
| Less: marketing and administrative expense: |
|
|
| Variable(35000×4) |
$140000 |
|
| Fixed |
$1120000 |
$1260000 |
| Net operating income(1400000-1260000) |
|
$140000 |
b) Income statement under variable costing:
| Particulars |
Amount |
Amount |
| Sales(35000×$120) |
|
$4200000 |
|
Less:COGS:
|
|
|
| Opening inventory |
- |
|
| Add: cost of goods manufactured(40000×48) |
$1920000 |
|
| Cost of goods available for sale |
$1920000 |
|
| Less: closing inventory(5000×48) |
$240000 |
$1680000 |
| Gross contribution profit(4200000-1680000) |
|
$2520000 |
| Less: variable marketing and administrative
expense(35000×4) |
|
$140000 |
| Contribution margin(2520000-140000) |
|
$2380000 |
| Less: fixed expenses: |
|
|
| Manufacturing overhead expenses |
$1280000 |
|
| Marketing and administrative expenses |
$1120000 |
$2400000 |
| Net operating income(2380000-2400000) |
|
-20000 |
C) Reconciliation schedule:
| Net operating loss under variable costing |
-$20000 |
| Add: fixed manufacturing overhead deferred in
inventory(5000×32) |
$160000 |
| Net operating income under absorption costing |
$140000 |
