ABSORPTION & VARIABLE COSTING

PROBLEM 2

BAYMAX makes state-of-the-art beach hats. Each hat sells for P2,000 each. Data for 2019's operation is as follows:

Units:

Beginning Inventory 5

Production 80

Ending Inventory Variable Costs: 15

Direct Materials 24,000

Direct Labor 16,000

Factory Overhead 8,000

Selling and Administrative Fixed Costs: 4,000

Factory Overhead 20,000

Selling and Administrative 2,000

Required:

1.Prepare income statements under both absorption costing and variable costing.

2.Provide computations explaining the differences in income between the two costing methods.

PROBLEM 4

Taeul Corp. uses the absorption costing method. The company's budgeted fixed overhead was determined to be at P500,000 with a normal capacity of P50,000 units. The net income, units produced and sold during the company's first three period of operation follows:

Period 1 Period 2 Period 3

Net Income P70,000 P80,000 P75,000

Units Produced 50,000 50,000 50,000

Units Sold 40,000 55,000 50,000

Required:

1.Using the reconciliation approach, determine the net income of the company if it was using the variable costing method.

2.Assuming that the company was using variable costing instead of absorption costing, compute the net income of the company under the absorption costing method for the three periods presented.