Exercise-14Beta Company is comparing its present

Exercise-14Beta Company is comparing its present

Exercise-14Beta Company is comparing its present
Exercise-14Beta Company is comparing its present

\Exercise-14Beta Company is comparing its present absorption costing practices with direct costing methods.

An examination of its records produced the following information:

Maximum plant capacity40,000 unitsNormal capacity36,000 units fixed factory overhead54,000 TkFixed marketing and

administrative expenses20,000 TkSales price per unit10Standard variable manufacturing cost per

unit4Variable marketing expenses per unit sold1For the year, the following data are available:

Budgeted production 36,000 unitsActual production 30,000 unitsSales28,000 unfinished goods inventory,

January 11,000 unitsUnfavourable variances from standard manufacturing cost Tk.5,000All variances are written

off directly at year-end ad an adjustment to the cost of goods sold. Required:1)Prepare a direct costing income

Exercise-14Beta Company is comparing its present
Exercise-14Beta Company is comparing its present

Exercise-14Beta Company is comparing its present

statement.2)Determine operating income if absorption costing had been used with the standard factory overhead

per unit based on normal capacity. Ans:-1. Ne income = 61,000; 2. Net income = 64,000

Exercise-15Income statements absorption costing Vs. direct costing. The following data pertain to April. Beginning

inventory0Units sold5,000Units produced8,000Sales price per unit24 TkDirect manufacturing cost per unit10Fixed factory

overhead-Total28,000Fixed factory overhead-per unit3.50Commercial-expenses (all fixed)10,000Required:1)Prepare an income

statement using absorption costing2)Prepare an income statement using direct costing.3)Provide computations explaining the

difference in operating income between the two methods.Ans:-(1) Net income=42,500 (2) Net income =32,000

Exercise-14Beta Company is comparing its present

Exercise-16Inventory costs—absorption Vs. direct costing: Orion Company produces a product having the

following standard cost per unit.
Direct materials 6
Direct labor 8
Variable factory overhead 5
Fixed factory overhead 2
The normal capacity is 80,000 units. During 19A. 75,000 units were the production and 60,000 were sold.

There were no finished goods beginning inventory and no beginning or ending work in process inventory.

Actual 19A costs incurred were:
Direct materials 4,60,000
Direct labor 6,25,000
Variable factory overhead 3,70,000
Fixed factory overhead 1,48,500
Total Tk.16,03,500
Required: Determine the cost assigned to finished goods ending inventory under each of the following methods.

1)Direct costing, using standard cost, with variable cost variances prorated.

Exercise-14Beta Company is comparing its present

2)Absorption costing, using actual cost.
3)Absorption costing using actual prime cost and applied factory overhead, based on normal capacity and assuming factory overhead variances are not prorated.
Ans:-1. Tk. 2,91,000; Tk. 3,20,700; 3. Tk. 3,22,000

Exercise-17Income statement—direct costing vs. absorption costing: Haque Company uses direct costing for its

internal management purpose and absorption costing for external reporting. Thus, at the end of each year,

financial data must be converted from direct costing to absorption costing to satisfy external requirements.

At the end of 19A, the company anticipated that sales would increase 20% next year.

Therefore, production was increased from 20,000 units to 24,000 units to meet this expected demand.

Exercise-14Beta Company is comparing its present

However, economic conditions kept the sales level at 20,000 units for each year. The following data pertain to 19A

and 19B19A19BSales price per unit30Tk30TkSales (units)20,00020,000Beginning inventory

(units)2,0002,000Production (units)20,00020,000Ending inventory (units)2,0006,000Total unfavorable

materials, labor, and variable factory overhead variance:Tk. 5,00 Tk.4,000Standard variable costs per unit for

19A and 19B areMaterialsTk.4.50LabourTk.7.50Variable factory overheadTk.3.00Tk.15.00Annual fixed costs for

19A and 19B (Budgeted and actual) reproduction Tk.90,000Marketing and

administrativeTk.100,000TotalTk.1,90,000The factory overhead rate under absorption costing is based on

practical plant capacity which is 30,000 units per year. All variances and over Or underapplied factory overhead is

closed to the cost of goods sold. Required :

1)Prepare an income statement for 19B based on. Direct costing. Absorption costing2)Reconcile both the

profits.Ans:-1.(a) Net income = Tk.1,06,000; (b) Net income = Tk.1,18,000

Exercise-14Beta Company is comparing its present

Exercise-18During June 2010, James Bond Company produced 7,000 units. Inventory on June-1 2010 was 3,000

units. During June 9,000 units were sold Tk. 50 each. James Bond company uses a standard cost system with the

following standard cost per unit: Tk. Direct Materials9.00Direct Labour11.00Variable Factory

Overhead7.00Fixed factory overhead (4,000 ÷8,000) 5.0032.00Other information: Variable marketing expenses

Tk. 2 Per unit. Fixed marketing and administrative expenses Tk.20,000. The denominator volume was 8,000 units.

Unfavorable variance from standard variable manufacturing cost Tk.5,000.Required: i. Explain whether James

The bond company uses direct or absorption costing. ii. Prepare an Income statement for June-2010 using direct

costing. iii. Compute Operating Income if absorption costing is used.Ans:-(ii) Tk. 1,24,000(iii) Tk.1,14,000.

Exercise-14Beta Company is comparing its present

Exercise-19Direct costing income statement Crawford company uses a standard cost system n accounting for its only product. Craw, which it sells for Tk.22 per unit. The standard cost per unit is Tk.

Direct materials4Direct labour6Variable factory overhead2Fixed factory overhead (based on normal of 60,000 units)3Tk.

15All variances are closed to Cost of Goods Sold. On October 1, there were 10,000 units of Craw on hand. During

October, 50,000 units were produced and 45,000 were sold.

Costs incurred during October were:

Tk.Direct materials1,98,000Direct labour3,05,000Variable factory overhead1,03,000Fixed Factory

overhead1,86,000Variable marketing and administrative50,000Fixed marketing and administrative74,000Required :

1. Explain whether Crawford uses direct or absorption costing.2.Prepare an income statement for October,

using direct costing.3.Compute the operating income for October if absorption costing is used.Ans:-1.

Absorption costing; 2. Net imcome=Tk. 1,34,000; 3. Net income=1,49,000

Exercise-14Beta Company is comparing its present

Exercise-20You are supplied with the following data of Moon Company Ltd for first and second years operation:

Sales (First year)2,000 unit sales (2ndyear)2,600 units selling price. 10 per unit cost :

Direct materialTk.1.00 per unit Direct labor-tk. 2.00 per unitVariable factory overhead T.1.50 per unit Fixed overhead (for each year)Tk. 6,240Administrative and Marketing overhead:

Fixed (for each year)Tk. 1,500Variable5% on salesProduction :

Required: Prepare comparative income statement under.a.Direct method. Absorption costing.

Asn:-(a) 2,260 : 5,260 (b) 4,340 ; 4,428.

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