MAS Product Costing Part I

Part I
San Sebastian College Recoletos

Canlubang Campus
Management Advisory Services
PRODUCT COSTING
1. A Company manufactures a professional grade vacuum cleaner and began operations in 2013. For
2013, the company had no price, spending or efficiency variances and writes off production-volume to
cost of goods sold. Actual data for 2013 are given as follows:
Units produced 18,000

Units sold 17,500
Selling price P300
Variable costs:
Materials P30
Manufacturing labor 25
Manufacturing overhead 60
Marketing 45
Fixed costs:
Manufacturing P900,000
Selling and administrative 750,000
REQUIRED:
1. The inventoriable unit cost for internal reporting purposes under variable costing
2. The inventoriable unit cost for external reporting pusposes under absorption costing.
3. Operating income for 2013 under variable costing.
4. Operating income for 2013 under absorption costing.
5. Accounting for the difference in income under the two costing methods.
2. Refer to Item 1. Compute the throughout margin and income under throughout costing.
3. Leonor Corporation developed the following standard unit cost at 100% of its normal production
capacity, which is 20,000 units per year.
Prime costs P4.00

Factory overhead (40% variable) 5.00
Unit product cost P9.00
The product is sold for P15 per unit. Variable commercial expenses are P2 per unit sold, and fixed
commercial expenses total P50,000 for the period. During the year, 21,000 units were produced and
19,000 units were sold. There is no work in process beginning or ending inventories and finished
goods inventory is maintained at standard cost, which has not changed from the preceding year. In the
current year, there is a net unfavorable variable cost variance in the amount of P4,000. All standard
cost variances are written off to cost of goods sold at the end of the period.
REQUIRED:
1. Prepare an income statement on the absorption costing basis.

2. Prepare an income statement on the variable costing basis.
3. Compute and reconcile the difference in operating income for the current year under absorption
costing and variable costing.
4. The following information is available for Yamyam Companys new product line:
Sale price unit P15
Variable manufacturing cost per unit of production 8
Total annual fixed manufacturing cost 25,000
Variable administrative cost per unit 3
Total annual fixed and administrative expenses 15,000
There was no inventory at the beginning of the year. Normal capacity is 12,500 units. During the year,
12,500 units were produced and 10,000 units were sold.
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Part I
REQUIRED:
1. Ending inventory, assuming the use of direct costing.
2. Ending inventory, assuming the use of absorption costing.
3. Total variable cost changed to expense for the year, assuming the use of direct costing.
4. Total fixed cost changed to expense for the year, assuming the use of absorption costing.
5. The following information pertains to Nickos Company:
Maximum productive capacity 24,000 units per year

Normal capacity 20,000 units
Standard variable manufacturing cost per unit P10
Fixed factory overhead P40,000
Variable selling expenses per unit P4
Fixed selling expenses P30,000
Unit sales price P20
2013 operating results:
Sales 19,000 units

Production 19,200 units
Net unfavorable variance for standard variable manufacturing cost ` P10,000
REQUIRED:
1) Income under both costing methods

2) Break even point
3) Margin of safety for 2013
4) Required sales to earn after tax profit of P140,000 (Tax rate is 30%)
5) Required sales in pesos to earn profit of 10% of sales
6. Els Company had net income for the first 10 months of the current year of P200,000. They used a
standard costing system, and there were no variances through October 31. One hundred thousand units
were manufactured during the period, and 100,000 units were sold. Fixed manufacturing overhead
was P2M over the 10 month period. There are no selling and administrative expenses for Els
Company. All variances are disposed of at year end by an adjustment to cost of goods sold. Both
variable and fixed costs are expected to continue at the same rates for the balance of the year (i.e.,
fixed costs at P200,000 per month and variable costs at the same variable cost per unit). There were
10,000 units in inventory on October 31. Eighteen thousand units are to be produced and 22,000 units
are to be sold in total over the last two months of the current year. Assume the standard unit variable
cost is the same in the current year as in the previous year.
REQUIRED:
1) If operations proceed as described, will net income be higher under variable or absorption costing
for the current year in total?
2) If operations proceed as described, what will net income for the year in total be under:
a) variable costing; b) absorption costing? Ignore income taxes.
7. During its first year of operations, Sugar Ray Company produced 55,000 jars of hand cream based on
a formula containing 10 percent glycolic acid. Unit sales were 53,500 jars. Fixed overhead was
applied at P0.50 per unit produced. Fixed overhead was underapplied by P10,000. This fixed overhead
variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of
the years operations are as follows (on an absorption-costing basis):
Sales (53,500 units @ P8.50) P454,750

Less: Cost of goods sold (170,500)
Gross margin P284,250
Less: Selling and administrative (all fixed) (120,000)
Net income P164,250
REQUIRED:
1) Give the cost of the firms ending inventory under absorption costing. What is the cost of the
ending inventory under variable costing?
2) Compute the income under variable costing. Reconcile the difference between the two income
figures.
***END***
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Part I

San Sebastian College Recoletos

Management Advisory Services

Units produced 18,000

Prime costs P4.00

1. Prepare an income statement on the absorption costing basis.

5. The following information pertains to Nickos Company:

Maximum productive capacity 24,000 units per year

2013 operating results:

Sales 19,000 units

1) Income under both costing methods

Sales (53,500 units @ P8.50) P454,750

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