BA 116 – Absorption and Variable Costing

1. Crystal Clear Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating
to January, February, and March, 2016 are as follows:
January February March
Beginning Inventory (Units) 0 100 100
Production (Units) 1,400 1,375 1,430
Sales (Units) 1,300 1,375 1,455
Variable Manufacturing 1,330,000 1,306,25 1,358,500
Costs 0
Variable Marketing Costs 942,500 996,875 1,054,875
Fixed Manufacturing Costs 490,000 490,000 490,000
Fixed Operating Costs 120,000 120,000 120,000
The selling price per unit is ₱3,500. The budgeted level of production used to calculate the budgeted fixed manufacturing
cost per unit is 1,400.
Compute for absorption & variable costing income for each month.
2. XYZ Company produces a product which sells at ₱10/unit. The company has the capacity to produce 150,000 units of
the product every year. For 2016, the produced 120,000 and sold 80,000. Relevant data are shown below:
Fixed Cost Variable Cost
Raw Materials ₱2.00 /unit
Direct Labor ₱1.25 /unit
Factory Overhead ₱120,000 ₱0.75 /unit
Selling and administrative cost for 2016 was ₱70,000 fixed cost and ₱80,000 variable.
Assuming 20,000 units of beginning inventory, calculate (1) absorption costing and (2) variable costing income for the
year.
3. Siko Company manufactures trendy, high-quality moderately priced watches. As Siko's senior financial analyst, you are
asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Siko's 2016
income statement. The following data are for the year ended December 31, 2016:
Beginning Inventory, January 1, 2016 85,000 units
Ending Inventory, December 31, 2016 34,500 units
2016 Sales 345,400 units
Selling Price (To Distributor) 22.00 per unit
Variable Manufacturing cost per unit, including direct 5.10 per unit
materials
Variable Operating (Marketing) Cost 380,050
Fixed Manufacturing Cost 1,440,00
0
Budgeted Machine Hours 6,000 machine hours
Standard Production Rate 50 units per machine
hour
Fixed Operating (Marketing) Cost 1,080,00
0

Compute for the 2016 Absorption and Variable Costing income, respectively.
4. XYZ Company started operations on January 1, 2015. The standard manufacturing cost structure during the 2015-2017
period is as follows:
Direct Materials 250
Direct Manufacturing Labor 20
Manufacturing Overhead 5
Fixed Manufacturing Costs 480,000

Budgeted annual production for 2015, 2016, and 2017 is 8,000 units. Summary information pertaining to absorption
costing and variable costing operating income is as follows:
2015 2016 2017
Absorption Costing Operating Income 1,500,000 1,560,00 2,340,000
0
Variable Costing Operating Income 1,380,000 1,650,00 2,190,000
 BA 116 – Absorption and Variable Costing
0
There were how many units in the ending inventory of XYZ as of end of 2017?

5. Given the following data:

Direct Materials ₱26/
unit
Direct Labor ₱30
Fixed Overhead (₱6 M based on 300,000 units capacity) ₱20
Variable Overhead ₱4
Selling/Administrative Expenses:
Variable ₱8/unit
Fixed ₱1.5 M
Selling Price per ₱120
Unit
Production and Sales in Units:
2009 2010 2011
Production 300,000 340,000 280,000
Sales 300,000 280,000 320,000

In which year would the difference between absorption and variable costing income be the highest?
6. The following information is available for XYZ Corporation's new product line.
Selling Price per
Unit ₱30
Sales (Units) 10,000
₱180,00
Variable Production Costs (Total) 0
Fixed Production Costs ₱60,000
Variable Selling Expenses ₱10,000
Fixed Selling/Administrative Expenses ₱30,000
Additional Information:

Production for the year 12,000 units

Normal Capacity 20,000 units
Beginning Inventory 2,000 units

Compute for absorption costing income.

7. Given the following data:

Direct Materials ₱26/unit

Direct Labor ₱30
Fixed Overhead (based on 300,000
units) ₱20
Variable Overhead ₱4
Selling/Administrative Expenses:
Variable ₱8/unit
Fixed ₱1.5 M
Selling Price per
Unit ₱120
Production and Sales in
Units:
2002 2003
Production 340,000 280,000
Sales 280,000 320,000

Compute for the 2002 absorption costing income.

Compute for the 2003 variable costing income
 BA 116 – Absorption and Variable Costing

8. XYZ Company produces a product which sells at ₱10/unit. The company has the capacity to produce 150,000 units of
the product every year. For 2011, they produced 120,000 and sold 80,000 units. Relevant data are shown below:

Fixed Cost Variable Cost

Raw Materials ₱2/unit
Direct Labor ₱1.25/unit
Factory Overhead 120,000 ₱0.75/unit
Selling/Admin
Cost 70,000 ₱1/unit

Assuming 20,000 units of beginning inventory, calculate absorption costing income for the year.