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Practice Problem Absorptionvariable Costing With Solutions PDF

This document contains a practice problem on absorption costing and variable costing with multiple questions. 1) It calculates the budgeted profit under absorption costing and variable costing for a company, showing a difference due to production exceeding sales. 2) It finds the break-even point in units when production equals sales. 3) It calculates the break-even sales when production is set to 70,000 units, finding it to be 9,478 units.

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324 views

Practice Problem Absorptionvariable Costing With Solutions PDF

This document contains a practice problem on absorption costing and variable costing with multiple questions. 1) It calculates the budgeted profit under absorption costing and variable costing for a company, showing a difference due to production exceeding sales. 2) It finds the break-even point in units when production equals sales. 3) It calculates the break-even sales when production is set to 70,000 units, finding it to be 9,478 units.

Uploaded by

One Dozen
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Practice problem absorption/variable costing with solutions

Management Accounting, Intermediate (Universiteit van Amsterdam)

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Practice problem AC, VC

A company produces and sells product X. For the first quarter of 2013 is budgeted:

- standard product costs per unit (in €):


- variable product costs € 71,00
- fixed product costs € 14,40
€ 85,40

- selling price € 115,00

- budget fixed product costs € 864.000; normal volume 60.000 units


- budget fixed period costs € 380.000;
- budget variable period costs € 4,70 per unit X sold;
- sales 75.000 X, production 70.000 X;
- beginning inventory January 1, 2013: 6.000 units X

Question 1a
Calculate for the first quarter of 2013 budgeted profit absorption costing.

Question 1b
Calculate for the first quarter of 2013 budgeted profit variable costing.

Question 1c
Explain the difference between the profit AC and the profit VC.

Question 1d
Calculate break even sales for the first quarter 2013, supposing production and sales are
equal.

Question 1e
Calculate break even sales for the first quarter 2013, supposing production will be 70.000
units X.

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Solution

1a: Profit Absorption Costing

Sales 75.000 x 115 = 8.625.000

COGS:
Beginning inventory 6.000 x 85,40 = 512.400
Costs production:
Variable 70.000 x 71,00 = 4.970.000
Fixed 864.000
-/- Ending inventory 1.000 x 85,40 = ( 85.400) 6.261.000
Gross Margin 2.364.000

Period costs:
- Variable 75.000 x 4,70 = 352.500
- Fixed 380.000 732.500

Profit 1.631.500

Or: Profit AC

75.000 (115,00 – 85,40) + (70.000 – 60.000) 14,40 – 75.000 (4,70) – 380.000 =

2.220.000 + 144.000 – 352.500 – 380.000 = 1.631.500

Or:

Exploitation Sheet Absorption Costing


Beginning inventory
6000 x 85,40 = 512.400 Sales 8.625.000
Ending inventory
1.000 x 85,40 = 85.400
Variable product costs 4.970.000
Fixed product costs 864.000
Variable period costs 352.500
Fixed period costs 380.000

Profit 1.631.500

8.710.400 8.710.400

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Question 1b: Profit Variable Costing

Sales 75.000 x 115 = 8.625.000

Variable COGS:
Beginning inventory 6.000 x 71,00 = 426.000
Variable Costs Production:
Variable 70.000 x 71,00 = 4.970.000
-/- Ending inventory 1.000 x 71,00 = ( 71.000) 5.325.000
3.300.000
Variable period costs 75.000 x 4,70 = 352.500
Contribution Margin 2.947.500

Fixed costs
- Product costs 864.000
- Period costs 380.000 1.244.000

Profit 1.703.500

Or: Profit VC

75.000 (115,00 – 71,00 – 4,70) – 864.000 – 380.000 = 1.703.500

Or:
Exploitation Sheet Variable Costing
Beginning inventory
6000 x 71,00 = 426.000 Sales 8.625.000
Ending inventory
1.000 x 71,00 = 71.000
Variable product costs 4.970.000
Fixed product costs 864.000
Variable period costs 352.500
Fixed period costs 380.000

Profit 1.703.500

8.696.000 8.696.000

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Question 1c
Profit AC 1.631.500
Profit VC 1.703.500
Difference 72.000

Sales > Production, so Profit VC > Profit AC

Difference: fixed product costs in beginning inventory 6.000 x 14.40 = 86.400


Fixed product costs in ending inventory 1.000 x 14.40 = 14.400
72.000
Question 1d
Break even sales (when production = sales)
Then Profit (VC) = 0
Fixed costs/Contribution Margin per unit = € 1.244.000/(€ 115,00 – € 71,00 – € 4,70) =
31.654 units

Or: Profit VC = 0

S (115,00 – 71,00 – 4,70) – 864.000 – 380.000 = 0


S = 31.654 units

Question 1e
Break even situation if production and sales are not equal:
S = sales
P = production

Profit(AC) = 0

S(115 – 85,40) – 4,7 S – 380.000 + (P – 60.000) 14.40 = 0

24,9 S + 14,4 P = 1.244.000 Break even line

On this line one point is unique: 31.654 units: sales and production are then the
same.

If: P = 70.000
24,9 S + 14,4 (70.000) = 1.244.000
Then; S = 9.478 units

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