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    07 Activity 1 17

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    reggie22begonia
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    BM2021

    Names of students Narvie T. Moreno Section BSA601 Date

    ACTIVITY

    Ace Corporation
    Ace Corporation has the following information in its first year of operations in 201A:

    Units produced 20,000


    Units sold 19,000

    Selling price per unit P150


    Direct material costs 20
    Direct labor 15
    Variable manufacturing overhead 50
    Variable selling costs 20

    Fixed manufacturing costs P460,000


    Fixed administrative costs 280,000

    Required:
    Prepare an income statement under (1) absorption costing, (2) variable costing, and (3) throughput costing.

    Ace Corporation
    Income Statement (Absorption Costing)
    December 31, 201A
    Sales (19,000 x P150) 2,850,000
    Less: Cost of Goods Sold (19,000 x P73) (1,387,000)
    Gross Profit 1,463,000
    Less: Selling and Administrative Expenses
    Variable Selling (19,000 x P20) 380,000
    Fixed administrative 280,000 (660,000)
    Net Income 803,000

    The cost of goods sold by P73 per unit is computed as the sum of variable and fixed manufacturing costs per
    unit [P50 + (460,000/20,000)]. The cost of ending inventory will be P73,000 (P73 x P1,000 units unsold)

    Ace Corporation
    Income Statement (Variable Costing)
    December 31, 201A
    Sales (19,000 x P150) 2,850,000
    Less: Variable Costs
    Cost of Goods Sold (19,000 x P50) 950,000
    Selling Costs (19,000 x P20) 380,000 (1,330,000)
    Contribution Margin 1,520,000
    Less: Fixed Costs
    Manufacturing Costs 460,000
    Administrative Costs 280,000 (740,000)
    Net Income 780,000

    This study source was downloaded by 100000892053154 from CourseHero.com on 10-08-2024 02:30:18 GMT -05:00

    https://www.coursehero.com/file/93122315/07-Activity-117-converteddocx/
    The income statement under variable costing separates variable costs and fixed costs and shows a contribution
    margin instead of a gross profit, as shown under absorption costing. The cost of ending inventory under
    variable costing is P50,000 (P50 x 1,000 units unsold).
    As shown in the two (2) income statements, the difference between the net income of the two (2) methods is
    P23,000. This is also the difference between the cost of ending inventory and comprises the fixed
    manufacturing overhead in ending inventory of P23,000 (P23 x 1,000 units unsold).

    To reconcile the net income in the two (2) methods, it shall be computed as follows:

    Variable costing net income 780,000 Absorption costing net income 380,000
    Add: Fixed manufacturing costs in 23,000 Less: Fixed manufacturing costs in (23,000)
    ending inventory (1,000 x P23) ending inventory (1,000 x P23)
    Absorption costing net income 803,000 Variable costing net income 780,000

    Ace Corporation
    Income Statement (Throughput Costing)
    December 31, 201A
    Sales (19,000 x P150) 2,850,000
    Less: Direct Materials (19,000 x P20) (380,000)
    Direct Labor (19,000 x 15)
    Throughput Margin 2,470,000
    Less: Variable and Fixed
    Variable manufacturing costs (20,000 x P20) 400,000
    Variable Selling Expenses (19,000 x P20) 380,000
    Fixed Manufacturing Costs 460,000
    Fixed Administrative Expenses 280,000 (1,520,000)
    Net Income 950,000
    In throughput costing, only the cost of materials is included in the cost of inventory. Direct labor and
    manufacturing overhead costs are all treated as period costs, treating them as expenses as they are incurred.
    This means that it is based on the units produced, not on the units sold. When production exceeds sales, the
    net income reported in throughput costing is much lower than variable and absorption costing.

    This study source was downloaded by 100000892053154 from CourseHero.com on 10-08-2024 02:30:18 GMT -05:00

    https://www.coursehero.com/file/93122315/07-Activity-117-converteddocx/
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