Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribedimage text in transcribedimage text in transcribed
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.ILLUSTRATION: ANJY Corporation has the following information in its first year of operations in 201A: Units produced 40,000 Units sold 36,000 Selling price per unit P60 Variable manufacturing costs P24 per unit produced Variable selling expenses P6 per unit sold Fixed manufacturing costs P500,000 Fixed administrative expenses P250,000 Assume that the actual production is the same as the normal operating level for the year. Income statements under the two (2) methods will be presented as follows: ANJY Corporation Income Statement (Absorption Costing) December 31, 201A Sales (36,000 x P60) P2, 160,000 Less: Cost of Goods Sold (36,000 x P36.50) 1,314,000 Gross Profit 846,000 Less: Selling and Administrative Expenses Variable Selling (36,000 x P6) P216,000 Fixed administrative 250,000 466,000 Net Income P380,000 The cost of goods sold by P36.50 per unit is computed as the sum of variable and fixed manufacturing costs per unit [P24 + (P500,000/40,000)]. The cost of ending inventory will be P146,000 (P36.50 x P4,000 units unsold). ANJY Corporation Income Statement (Variable Costing) December 31, 201A Sales (36,000 x P60) P2,160,000 Less: Variable Costs Cost of Goods Sold (36,000 x P24) P864,000 Selling Costs (36,000 x P6) 216,000 1,080,000 Contribution Margin 1,080,000 Less: Fixed Costs Manufacturing Costs 500,000 Administrative Costs 250,000 750,000 Net Income P330,000 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 P96,000 (P24 x 4,000 units unsold).As shown in the two (2) income statements. the difference between the net income of the two (2} methods is P50.000. This is also the difference between the cost of ending inventory and comprises the fixed manufacturing overhead in ending inventory of P50.000 (P1250 x 4.000 units unsold). To reconcile the net income in the two {2) methods. it shall be computed as follows: Variable costing net income P330000 Absorption costing net income P380000 Add: Fixed manufacturing costs in Less: Fixed manufacturing costs in ending inventory (4.000 rt P1250) 50.000 ending inventory (4.000 rt P1150) 50.000 Absorption costing net income P380.000 Variable costing net income P330300 Assume that the direct material per unit is P12. the foliowing is the income statement using throughput costing: ANJY Corporation Income Statement {Throughput Costing} December 31, 201A Sales (36.000 at P60} P2160000 Lees: Direct Materials {30.000 x 012) 432000." Throughput Margin 1.723.000 Lees: Variable manufacturing costs (40.000 Jt P12] P480000 Variable Selling Expenses (36.000 XPBJ 216.000 Fixed Manufacturing Costs 500.000 Fixed Administrative Expenses 250.000 P1,446,000 Net Income P232000 In throughput costing. only the cost of matenals is included in the cost of inventory. Direct iabor and manufacturing overhead costs are all treated as period costs. expensing them 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Multicolumn Journal

Authors: Claudia Gilbertson

11th Edition

1337565423, 9781337565424

More Books

Students also viewed these Accounting questions

Question

What other requirements do they have for admission?

Answered: 1 week ago

Question

1. Information that is currently accessible (recognition).

Answered: 1 week ago