Question

Easy Breeze company produced 100,000 units, sold 90,000 units at a selling price per unit of $450, and incurred the following manufacturing costs:

Direct Materials = $40 per unit

Direct Labor = $18 per unit

Factory overhead costs:

Variable Factory Overhead = $23 per unit

Fixed Factory overhead = $250,000

Semi-variable Factory overhead cost is $70,000. The company utilized 14,000 machine hours during this period. The following additional information is provided semi-variable factory overhead into variable and fixed factory overhead costs, using high-low method.

Cost machine hours

Jan $52,000 10,000

Feb $54,000 11,000

Mar $77,000 20,000

April $67,000 12,500

Selling and Administrative expenses information:

Variable Selling and Administrative Expenses = $22 per unit

Fixed Selling and Administrative Expenses= $122,000.

Questions:

• Absorption costing income statement

• Explain the difference between the operating income and the absorption costing income statement?

• what caused the difference?

Answer 1

1)
	Varibale Costing Income Statement	90,000 Units Sold
	Particulars	Per Unit			Amount ($)
	Sales	450.00	[90,000 x 450.00]		40500000
	Less: Cost of Goods Sold :-
	Opening Inventory		-	-
	Add: Variable cost of goods sold	81.35	[1,00,000 x 81.35]	8,135,000
	- Direct Materials                = 40.00
	- Direct Labour                    = 18.00
	- Variable Overhead            = 23.00
	- Semi Variable Mfg. OH     =    0.35
	Variable selling & admin exp.	22.00	[90,000 x 22.00]	1,980,000
	Less: Closing Inventory		[10,000 x 81.35]	813,500	9301500
	Contribution Margin				31198500
	Less: Fixed costs
	Fixed Manufacturing overhead				250000
	Semi Fixed Manufacturing OH		[$70000 - $35000]		35000
	Selling & administrative exp.				122000
	Net operating income				30791500
		Jan	$52,000	10000
		Feb	$54,000	11000
		March	$77,000	20000
		April	$67,000	12500
	Variable Cost per unit	(Highest Activity Cost - Lowset Activity Cost)
		(Highest Activity Units - Lowset Activity Units)
	Variable Cost per unit	($77,000 - $52,000)
		(20,000 - 10,000)
	Variable Cost per unit	[$25,000]
		[10,000]
	Variable Cost per unit		$2.50
	at 14,000 Hours		[14000 x $ 2.50]
	at 14,000 Hours		$35,000
	Semi Variable Cost per unit		[$35000 / 100000]
	Semi Variable Cost per unit		$0.35
	Absorption Costing Income Statement	90,000 Units Sold
	Particulars	Per Unit			Amount ($)
	Sales	450.00	[90,000 x 450.00]		40500000
	Less: Cost of Goods Sold :-
	Opening Inventory		-	-
	Add: Variable cost of goods sold	81.35	[1,00,000 x 81.35]	8,135,000
	- Direct Materials                = 40.00
	- Direct Labour                    = 18.00
	- Variable Overhead            = 23.00
	- Semi Variable Mfg. OH    =    0.35
	Fixed cost of goods sold:	2.85	[1,00,000 x 2.85]	285,000
	- Fixed Mfg. OH                     =   2.50
	- Semi Fixed Mfg. OH          =    0.35
	Less: Closing Inventory		[10,000 x 84.20]	842,000	7578000
	Gross Profit				32922000
	Less: Selling & Admin Exp.
	Variable selling & admin exp.	22.00	[90,000 x 22.00]		1980000
	Fixed Selling & administrative exp.				122000
	Net operating income				30820000
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