Chapter 06 - Variable Costing As A Tool To Management Planning

Management Services by Luzviminda S.
Payongayong
Y2006 edition
Chapter 6
I
II
TRUE OR FALSE
1 TRUE
2 TRUE
3 FALSE
4 TRUE
5 TRUE
6 FALSE
7 TRUE
8 FALSE
9 FALSE
10 TRUE
Variable Costing as a Tool to Management Planning

11
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FALSE
TRUE
FALSE
TRUE
TRUE
TRUE
FALSE
TRUE
FALSE
TRUE
21
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25
26
27
28
B
B
C
A
B
C
C
A
D
C
21
22
23
24
25
26
27
28
29
FALSE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
TRUE
MULTIPLE CHOICE QUESTIONS

1
2
3
4
5
6
7
8
9
10
D
D
A
C
D
B
D
A
B
A
11
12
13
14
15
16
17
18
19
20
A
D
A
B
D
A
A
B
B
III MULTIPLE CHOICE PROBLEMS

1 C
P26.00
P10 + P6 + P2 +(P480,000 / 60,000) =
26.00
2 B
P18.00
P10 + P6 + P2 =
18.00
3 C
P1,300,000
P26 X 50,000 units
4 A
P180,000
produced
sold
ending inventory
5 B
6 B
P80,000
P14,000
1,300,000.00
60,000 units
50,000 units
10,000 units
produced
60,000 units
sold
50,000 units
ending inventory
10,000 units
x P8.00 cost per unit
Factory overhed per unit = P480,000 / 60,000 units = P8.00
y2007
y2008
beginning
0
+ units produced
20
20
- units sold
-20
-16
= ending inventory
0
4
Sales
16 units at P11,000
cost of sales :
variable cost
fixed overhead
P30,000 / 20 units
units sold
gross profit
Less, operating expenses:
variable selling & administrative
fixed selling and administrative
Net income
7 C
P41,000
x P18.00 cost per unit
P125 x 16 =
Sales
24 units at P11,000
cost of sales :
variable cost
fixed overhead
P30,000 / 20 units
units sold
gross profit
180,000.00
80,000.00
y2009
4.00
20.00
-24
0
176,000.00
6,000.00
1,500.00
7,500.00
16
2,000.00
40,000.00
120,000.00
56,000.00
42,000.00
14,000.00
264,000.00
6,000.00
1,500.00
7,500.00
24
1 124031951.xls.ms_office Sheet1
180,000.00
84,000.00
Management Services by Luzviminda S. Payongayong

Y2006 edition
Less, operating expenses:
variable selling & administrative
fixed selling and administrative
Net income
8 A
P8,000
P125 x 24 =
Sales
16 units at P11,000
variable costs
cost of sales
selling & administrative
P47,000
6,000.00
125.00
6,125.00
16
30,000.00
40,000.00
Sales
24 units at P11,000
variable costs
cost of sales
selling & administrative
98,000.00
78,000.00
70,000.00
8,000.00
264,000.00
6,000.00
125.00
6,125.00
24
units sold
contribution margin
Less, fixed costs:
factory overhead
selling and administrative costs
Net income
10 D
43,000.00
41,000.00
176,000.00
units sold
contribution margin
Less, fixed costs:
factory overhead
selling and administrative costs
Net income
9 D
3,000.00
40,000.00
30,000.00
40,000.00
P17 & P16

variable cost per unit
fixed cost per unit
at 40,000 = P200,000 / 40,000
at 50,000 = P200,000 / 50,000
total cost per unit
11 D
P12 & P12
12 B
P390,000 & P430,000

Sales
40,000 units
total costs of sales
gross profit
Less Expenses
variable selling P2 per unit
fixed selling & administrative
total expenses
net income
13 A
P390,000 & P390,000

Sales
40,000 units
variable costs:
Cost of sales
Selling & administrative
147,000.00
117,000.00
70,000.00
47,000.00
Production
under 40,000 under 50,000
12.00
12.00
5.00
17.00
4.00
16.00
only variable manufacturing costs
contribution margin
less, Fixed expenses
Manufacturing
Selling & administrative
total expenses
net income
14 A
refer to number 12
15 B
Note There was no inventory at January 1, 2007.

P200 decrease Variable costing (P6 x 100 )
Absorption costing ( P8 x 100)
difference
Production
1,200,000.00
1,200,000.00
680,000.00
640,000.00
520,000.00
560,000.00
80,000.00
80,000.00
50,000.00
50,000.00
130,000.00
130,000.00
390,000.00
430,000.00
Production
1,200,000.00
1,200,000.00
480,000.00
480,000.00
80,000.00
80,000.00
560,000.00
560,000.00
640,000.00
640,000.00
200,000.00
200,000.00
50,000.00
50,000.00
250,000.00
250,000.00
390,000.00
390,000.00
600.00
800.00
(200.00)
16 C
P19.00
Cost per unit under AC
P5 + P 6 + P1 + (P21000/ 3000) = P19.00
17 A
P3,600
Net income per AC

Fixed Factory OH in EI (2,000 x [P18,500 /6,000])
Net income per VC
7,800.00
(4,200.00)
3,600.00

Y2006 edition
18 B
19 B
P4,000 loss
P4,000
Net income per AC

Less, Fixed Factory OH in EI [2,000 x (P18,000/6000)]
Net loss per VC
OR
Sales
Variable cost of sales (4000 x P5.00)
Variable Selling Expenses
Total variable costs
CM
Fixed costs manufacturing costs
Fixed selling
Total fixed costs
Net loss
P16.00
P4.00 + P2.00 + P10.00
21 A
P10.00
Cost per unit = [P4 + P2 + (P10 x 40%)]
22 D
(P2,000)
Net income per AC

Less, Fixed FOH in EI
Net income (loss) per VC
24 A
P36,000
40,000.00
20,000.00
4,000.00
24,000.00
16,000.00
18,000.00
2,000.00
20,000.00
(4,000.00)
Net income per VC

Add, Fixed FOH in EI [1,000 x (P12,000/6,000)]
Net income per AC
OR
Sales
Cost of sales
Production - variable
5,000 x P7
Production - fixed
(P12,000 / 6,000) x 5,000
Gross Profit
Expenses: Fixed selling
Variable
Net loss
20 B
23 A
2,000.00
(6,000.00)
(4,000.00)
2,000.00
2,000.00
4,000.00
65,000.00
35,000.00
10,000.00
45,000.00
20,000.00
6,000.00
10,000.00
16,000.00
4,000.00
16.00
10.00
6,000.00
(8,000.00)
(2,000.00)
2,000 x P4.00
Fixed cost expensed:

From COGS
6,000 x P4.00
From sellingP18,000 x 2/3
24,000.00
12,000.00
P2,400 greater
Sales
(300 x P50)
Less, Cost of goods sold
Variable costs (300 x P10)
Fixed FOH (P6,000/500) x P300
Total
CM/GP
Less, Fixed Costs/Operating Exp.
Manufacturing fixed costs
Variable selling
Fixed selling
Total
Net income
Net income per AC
Net loss per VC
Net income per AC greater than Net income per VC
Absorption
Costing
15,000.00
3,000.00
3,000.00
12,000.00
3,000.00
3,600.00
6,600.00
8,400.00
6,000.00
2,000.00
4,500.00
12,500.00
(500.00)
2,000.00
4,500.00
6,500.00
1,900.00
1,900.00
(500.00)
2,400.00
25 B
P2,000
Ending inventory
26 C
P20,000
Net income per VC

Add, Fixed FOH in ending inventory (P22 -P12) x 1,000
Net income per AC
10,000.00
10,000.00
20,000.00
27 D
P20,000
Production
Sold
Ending Inventory
20,000.00
28 D
P25,000
200 x P10.00
Variable
Costing
15,000.00
12,500
10,000
2,500
2,000.00
x P8.00 per unit
Units in ending inventory

Cost per unit P8.00 + (P25,000/ 12,500) = P10
2,500
x 2,500 =
25,000.00

Y2006 edition
29 B
P117,500
Cost of sales 10,000 x P8.00 =

Selling & Administrative expense 12,500 x P3.00 =
30 A
P35,000
Cost of sales 10,000 x (P25,000 / 12,500)

Selling and Administrative expense
80,000.00
37,500.00
117,500.00
20,000.00
15,000.00
35,000.00
Management Services
Y2006 edition
Chapter 6
by Luzviminda S. Payongayong
Variable Costing as a Tool to Management Planning
PROBLEMS
6.1
1 Using absorption costing

Direct material
Direct labor
Variable overhead
Fixed overhead
Total Production
(P108,000 / 12,000)
Absorption Costing Income statement

Sales
(10,000 x P110 )
Less, Cost of Sales
(10,000 x P54 )
Gross Profit
Less, Operating Expenses:
Selling & Administrative - Fixed
Selling & Administrative - Variable
Net income
2 Using variable costing
Direct material
Direct labor
Variable overhead
Total Production
30.00
12.00
3.00
9.00
54.00
1,100,000.00
540,000.00
560,000.00
200,000.00
40,000.00
30.00
12.00
3.00
45.00
Variable Costing Income statement

Sales
(10,000 x P110 )
Less, Variable costs:
Manufacturing costs
10,000 x P45
Selling & Administrative 10,000 x P4
Contribution margin
Less, Fixed costs:
Manufacturing costs
Selling & Administrative
Net income
1,100,000.00
450,000.00
40,000.00
108,000.00
200,000.00
3 Difference in net income

Per absorption costing
Per variable costing
Difference
(2,000 EI x P9 Fixed FFOH)
a
When production exceeds sales ( P > S ), net income per AC is greater than
net income per VC as there are Fixed FOH that are inventoried.
6.2
490,000.00
610,000.00
308,000.00
302,000.00
320,000.00
302,000.00
18,000.00
1 Cost per unit under Absorption costing (P90 + [ P450,000 / 20,000 units] ) = P112.50
Sales
17,000 x P200
3,400,000.00
Less, Cost of slaes
17,000 x P112.50
1,912,500.00
Gross Profit
1,487,500.00
Less, Expenses:
Variable selling & adm 17,000 x P22
374,000.00
Fixed selling & adm
500,000.00
874,000.00
Net income
613,500.00
2 Inventory at end
6.3
240,000.00
320,000.00
3,000 x P112.50
Variable costing method
337,500.00
Production at
30,000 cans
50,000 cans
Sales
( 30,000 at P15. per unit)
450,000.00
450,000.00
Less Variable costs - Production
30,000 x P7
210,000.00
210,000.00
Contribution margin
240,000.00
240,000.00
Management Services
Y2006 edition
Less
Fixed costs
Production
Selling & Administrative
150,000.00
25,000.00
175,000.00
65,000.00
Net income
6.4
Net income per Absorption costing

- FOH in EI [(P45,000 - P41,000) x (P225,000 / 45,000)]
Net income per Variable costing
150,000.00
25,000.00
175,000.00
65,000.00
62,000.00
20,000.00
42,000.00
6.5
Sales
Less, Variable costs:
Cost of sales
[P1,500,000 - (250,000 x P3.00)]
Operating expenses
Contribution margin
Less, Fixed costs:
Manufacturing costs (P1,500,000 - P750,000)
Operating expenses
Net income
6.6
1
ABSORPTION COSTING METHOD
Sales
Less, Cost of sales
Direct materials
Direct labor
Factory overhead
Total manufacturing costs
Less, cost of inventory for 2,000 units
(P136,000 / 16,500) x 2,000 units
Gross Profit
Less, Operating
Variable operating
expenses
expenses:
Selling and marketing expenses
General & Administrative expenses
Net income
2
VARIABLE COSTING METHOD
Sales
Less, Variable costs of sales
Direct materials
Direct labor
Factory overhead
Total manufacturing costs
Less, cost of inventory for 2,000 units
(P96,000 / 16,500) x 2,000 units
Manufacturing contribution margin
Less, Variable operating expenses:
Final Contribution margin
Less, Fixed costs:
Factory overhead
Net income
3
+
Fixed FOH in ending inventory 2,000 x (P40,000 /16,500)
=
Net income per absorption costing
2,000,000.00
750,000.00
125,000.00
750,000.00
100,000.00
875,000.00
1,125,000.00
850,000.00
275,000.00
174,000.00
44,000.00
36,000.00
56,000.00
136,000.00
16,484.85
20,000.00
12,000.00
119,515.15
54,484.85
32,000.00
22,484.85
174,000.00
44,000.00
36,000.00
16,000.00
96,000.00
11,636.36
10,000.00
2,000.00
40,000.00
10,000.00
10,000.00
84,363.64
89,636.36
12,000.00
77,636.36
60,000.00
17,636.36
17,636.36
4,848.48
22,484.84
The difference is due to the treatment in the Fixed FOH. The full amount of P40,000 was charged to the
revenues under variable costing while only P35,151.52 (P40,000 /16,500 x 14,500) was charged to the
revenues under the absorption costing. (P40,000 - P35,151.52)
6.7
Direct materials
Direct labor
Variable overhead
Variable
Costing
3.00
2.00
1.00
Absorption
Costing
3.00
2.00
1.00
Management Services
Y2006 edition
1
2
Fixed overhead
(P30,000 /100,000)
Total cost per unit
Ending inventory in units
Cost of ending inventory
Sales in units
Cost of sales
Sales
Less,
Cost of sales
Fixed factory overhead
Selling & Administrative -variable
Selling & Administrative -fixed
Total
Net income
6.8
1
2
+
6.9
1
6.00
25,000
150,000.00
75,000
450,000.00
2,100,000.00
450,000.00
300,000.00
75,000.00
160,000.00
985,000.00
1,115,000.00
3.00
9.00
25,000
225,000.00
75,000
675,000.00
2,100,000.00
675,000.00
75,000.00
160,000.00
910,000.00
1,190,000.00
Variable
Costing
80,000.00
100,000.00
72,000.00
252,000.00
12,000
21.00
10,000
210,000.00
Absorption
Costing
80,000.00
100,000.00
72,000.00
60,000.00
312,000.00
12,000
26.00
10,000
260,000.00
40,000.00
(10,000.00)
20,000.00
50,000.00
Direct materials
Direct labor
Factory overhead
- variable
Factory overhead
- fixed
Total cost
Units produced
cost per unit
Units sold
Cost of goods sold
Net income per variable costing
Fixed factory overhead in beginning inventory (P60,000/12,000) x 2,000
Fixed factory overhead in ending inventory (2,000 + 12,000 - 10,000) x P5.00
Absorption costing method

Sales
Less Cost of Sales
Beginning inventory
Add, Current costs:
Variable Manufacturing costs at P7.50
Fixed costs
Add, Current costs
Total Available for sale
Less, Ending inventory
Cost of sales
Gross profit
Selling and administrative expense
Net income
* 7,000 x (P200,000/20,000) = P70,000
** 2,000 x (P189,000/18,000) = P21,000
Variable costing method

Sales
Less, Variable costs
Cost of sales
Beginning inventory
Current costs
Available for sale
Ending inventory
Cost of sales
Variable expenses
(P45,000 x 40%)
Contribution margin
Less, Fixed costs
Factory overhead
Selling and Administrative (P45,000 x 60%)
Year 1
260,000.00
-
Year 2
460,000.00
70,000.00
150,000.00
50,000.00
200,000.00
200,000.00
70,000.00
130,000.00
130,000.00
45,000.00
85,000.00
135,000.00
54,000.00
189,000.00
259,000.00
21,000.00
238,000.00
222,000.00
75,000.00
147,000.00
260,000.00
460,000.00
150,000.00
150,000.00
52,500.00
97,500.00
18,000.00
115,500.00
144,500.00
52,500.00
135,000.00
187,500.00
15,000.00 **
172,500.00
30,000.00 (P75,000 x 40%)
202,500.00
257,500.00
50,000.00
27,000.00
54,000.00
45,000.00 (P75,000 x 60%)
**
Management Services
Y2006 edition
Total fixed costs

Net income
* 7,000 x (P150,000/20,000) = P52,500
** 2,000 x (P135,000/18,000) = P15,000
3
Difference in Net income

Difference
Fixed factory overhead in Ending inventory
Fixed factory overhead in Beginning inventory
Total Difference
OR
Net income per Absorption costing
+
Fixed factory overhead in beg. Inventory
Y1
Y2
7000 x P2.50
Fixed factory overhead in end. Inventory
Y1
7000 x P2.50
Y2
2000 x P3.00
6.10
1 Variable costing method

Sales (14,000 @ P45) (16,000 @ P45)
Less Variable costs
Cost of goods sold
Beginning inventory, at std., P25
Current costs at std., at P25
Total
Ending inventory, at std. P25
Variable cost of goods sold
Variable selling and Adm., Expenses
Total Variable costs
Contribution Margin
Less, Fixed Costs:

Factory overhead
Selling & Administrative Expenses
Total Fixed costs
Operating income
2 Absorption cosing method
Sales (14,000 @ P45) (16,000 @ P45)
Less Cost of goods sold
Beginning inventory, at std., P33*
Current costs at std., at P33
Total
Ending inventory, at std. P33
Variable cost of goods sold
Gross Profit at standard
Production volume variance - Fav (Unfav)**
Gross Profit at Actual
Less Operating Expenses:
Operating income
* Standard costs :
Variable costs
Fixed costs (P120,000 / 15,000)
77,000.00
67,500.00
99,000.00
158,500.00
85,000.00
67,500.00
17,500.00
147,000.00
158,500.00
(11,500.00)
70,000.00
52,500.00
17,500.00
21,000.00
15,000.00
6,000.00
17,500.00
70,000.00
52,500.00
17,500.00
(11,500.00)
85,000.00
147,000.00
17,500.00
(17,500.00)
67,500.00
(6,000.00)
158,500.00
Year 1
630,000.00
Year 2
720,000.00
425,000.00
425,000.00
75,000.00
350,000.00
350,000.00
280,000.00
75,000.00
350,000.00
425,000.00
25,000.00
400,000.00
400,000.00
320,000.00
120,000.00
120,000.00
160,000.00
120,000.00
120,000.00
200,000.00
630,000.00
720,000.00
561,000.00
561,000.00
99,000.00
462,000.00
168,000.00
16,000.00
184,000.00
99,000.00
462,000.00
561,000.00
33,000.00
528,000.00
192,000.00
(8,000.00)
184,000.00
184,000.00
184,000.00
25.00
8.00
33.00
Management Services
Y2006 edition
** Production volume variance:

Year 1
17,000 - 15,000 x P8
Year 2
14,000 - 15,000 x P8
16,000.00
8,000.00
3 Reconciliation of net income

Fixed factory overhead costs in:
Beginning inventory
Y 1
0
Y2
3000 x P8
Ending inventory
Y1
3000 x P8
Y2
1000 x P8
Year 1
160,000.00
Favorable
Unfavorable
Year 2
200,000.00
total
360,000.00
(24,000.00)
24,000.00
184,000.00
8,000.00
184,000.00
8,000.00
368,000.00
6.11
1 Standard costs
Direct materials
Direct labor
Variable overhead
Fixed overhead
2 Units sold* Sales
(20,000 + 110,000 - 12,000 )
Cost of goods sold
Less, Prod. volume variance (100,000 - 110,000 ) x P1.10
Cost of goods sold at actual
Variable
Costing
3.00
6.00
1.00
10.00
118,000.00
1,180,000.00
1,180,000.00
Absorption
Costing
3.00
6.00
1.00
1.10
11.10
118,000.00
1,309,800.00
(11,000.00) Fav.
1,298,800.00
6.12
Direct materials and direct labor
Factory overhead
Total Manufacturing costs
Units produced
Cost per unit
Ending finished goods in units
Cost of ending finished goods
500,000.00
100,000.00
600,000.00
1,000.00
600.00
200.00
120,000.00
6.13
Fixed manufacturing costs
Variable manufacturing costs
Direct materials
Direct labor
Total costs
Units produced
cost per unit
Units of ending inventory
cost of ending inventory
( a / b)
(c x d)
a
b
c
d
e
No. 1
44,000.00
12,000.00
30,000.00
24,000.00
110,000.00
2,200
50.00
300.00
15,000.00
No. 2
12,000.00
30,000.00
24,000.00
66,000.00
2,200
30.00
300.00
9,000.00
6.14
a
Absorption costing
Sales
Less, cost of goods sold
Beginning inventory
Current Production
Available for sale
Ending inventory
Gross Profit
Less Expenses
Net income
256,000.00
2,000 x P16
160,000.00
160,000.00
(32,000.00)
128,000.00
128,000.00
80,000.00
48,000.00
Management Services
Y2006 edition
b
Variable costing
Sales
Less, Cost of goods sold
Variable manufacturing costs
Less, Ending inventory
2,000 x P9.60
Contribution Margin
Less, Fixed costs:
Manufacturing costs
Net income
OR
Fixed factory overhead in Ending inventory
(P6.40 x 2,000)
256,000.00
96,000.00
(19,200.00)
64,000.00
80,000.00
76,800.00
179,200.00
144,000.00
35,200.00
48,000.00
(12,800.00)
35,200.00

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Management Services by Luzviminda S.

Variable Costing as a Tool to Management Planning

MULTIPLE CHOICE QUESTIONS

III MULTIPLE CHOICE PROBLEMS

P10 + P6 + P2 +(P480,000 / 60,000) =

P26 X 50,000 units

x P18.00 cost per unit

Management Services by Luzviminda S. Payongayong

P17 & P16

P12 & P12

P390,000 & P430,000

P390,000 & P390,000

only variable manufacturing costs

Note There was no inventory at January 1, 2007.

Cost per unit under AC

P5 + P 6 + P1 + (P21000/ 3000) = P19.00

Net income per AC

Management Services by Luzviminda S. Payongayong

Net income per AC

P4.00 + P2.00 + P10.00

Cost per unit = [P4 + P2 + (P10 x 40%)]

Net income per AC

Net income per VC

Fixed cost expensed:

Net income per VC

x P8.00 per unit

Units in ending inventory

Management Services by Luzviminda S. Payongayong

Cost of sales 10,000 x P8.00 =

Cost of sales 10,000 x (P25,000 / 12,500)

Variable Costing as a Tool to Management Planning

1 Using absorption costing

Absorption Costing Income statement

Variable Costing Income statement

3 Difference in net income

Variable costing method

Net income per Absorption costing

Absorption costing method

Variable costing method

Total fixed costs

Difference in Net income

1 Variable costing method

Less, Fixed Costs:

** Production volume variance:

3 Reconciliation of net income

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