Xiangling Company’s income under absorption costing was P42,600 higher than its income under variable costing. The...

Xiangling Company’s income under absorption costing was P42,600 higher than its income under variable costing. The company sold 15,000 units during the year, and its variable costs were P18 per unit, P4 of which represents the variable selling expense. The ending inventory is 11,600 units. Fixed selling and administrative expense is P35,000. If production cost was P20 per unit under absorption costing, then

1. How much is the fixed factory overhead per unit?

2. What is the beginning inventory units?

3. How much is the profit under variable costing if the selling price is P30?

Solutions

Expert Solution

DETAILS GIVEN IN QUESTION:

ABSORPTION COSTING INCOME IS HIGHER THAN VARIABLE COSTING BY P42,600

UNITS SOLD =15,000 CLOSING STOCK UNITS = 11,600. TOTAL VARIABLE COST p.u.. P18. OF WHICH VARIABLE SELLING COST p.u. P4.

FIXED ADMIN COST P35,000. PRODUCTION COST UNDER ABSORPTION COSTING = P 20 p.u.

ANSWER:

1. FIXED FACTORY OVERHEAD p.u.

TOTAL VARIABLE COST = P18

(-) VARIABLE SELLING COST = P4

HENCE, VARIABLE PRODUCTION COST = P14

TOTAL PRODUCTION COST	P20
(-) VARIABLE PRODUCTION COST	P14
HENCE, FIXED PRODUCTION COST	P6

2. BEGINNING INVENTORY UNITS

DIFFERENCE IN INCOME AS PER ABSORPTION COST & VARIABLE COST IS DUE TO VALUATION OF OPENING & ENDING INVENTORIES. UNDER ABSORPTION COST, INVENTORIES ARE VALUED AT TOTAL PRODUCTION COST. WHEREAS, UNDER VARIABLE COST, INVENTORIES ARE VALUED AT VARIABLE PRODUCTION COST.

DIFFERENCE IN INCOME	(higher in Absorption)	P42,600
(-) DIFFERENCE DUE TO CLOSING INVENTORY	(20-14) * 11600	P69,600
HENCE, DIFFERENCE DUE TO BEGINNING INVENTORY	balance figure	P-27,000

HENCE, UNITS OF BEGINNING INVENTORY = 27,000 / (20-14) = 27,000 / 6 = 4,500 UNITS

3. PROFIT UNDER VARIABLE COSTING METHOD:

	SALES (A)	(15,000 X 30)	450,000
(-)	VARIABLE COST
	VARIABLE PRODUCTION COST #	(22,100 X 14)	309,400
	(+) OPENING INVENTORY	(4,500 X 14)	63,000
	(-) CLOSING INVENTORY	(11,600 X 14)	(162,400)
	VARIABLE SELLING & ADMIN COST	(15,000 X 4)	60,000
	NET VARIABLE COST (B)		270,000
	CONTRIBUTION (A-B)		180,000
(-)	FIXED COST
	PRODUCTION COST #	(22,100 X 6)	132,600
	SELLING & ADMIN		35,000
	TOTAL FIXED COST		167,600
	PROFIT (CONTRIBUTION – FIXED COST)		P 12,400

# UNITS PRODUCED
SALES	15,000
(+) ENDING INVENTORY	11,600
(-) BEGINNING INVENTORY	(4,500)
PRODUCTION	22,100

ekkarill92 answered 1 year ago

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