This paper concentrates on the primary theme of Variable costing and Absorption Costing in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.
Variable costing and Absorption Costing
Workings
Monthly Sales Workings (Drury, 227-229)
| July | August | September | October |
| Units sold | 6000 | 10000 | 15000 | 11000 |
| Selling price per unit ($ 138) | 138 | 138 | 138 | 138 |
| Total sales revenue (Units * SP) | $828,000 | $1,380,000 | $2,070,000 | $1,518,000 |
Variable Expenses
| Cost of goods sold per unit |
| | Qty | cost per Qty | total cost | |
| Direct material | 4 KGS | $10 | $40 |
| Direct labour | 2 Hrs | $17 | $34 |
| Manufacturing overhead | 8 Hrs | $7 | $56 |
| Total cogs per unit | | | $130 |
| Total units sold | July | August | September | October |
| 6000 | 10000 | 15000 | 11000 |
| Total cost of sales (cog per unit * SP | $780,000 | $1,300,000 | $1,950,000 | $1,430,000 |
Marketing and Administrative Costs
| sales | $828,000 | $1,380,000 | $2,070,000 | $1,518,000 |
| Percentage of variable Admin and sales | 2% | 2% | 2% | 2% |
| Total variable admin cost | $16,560 | $27,600 | $41,400 | $30,360 |
Total Variable Cost
| Total variable admin cost | $16,560 | $27,600 | $41,400 | $30,360 |
| Total cost of sales (cog per unit * sp | $780,000 | $1,300,000 | $1,950,000 | $1,430,000 |
| Total Variable cost | $796,560 | $1,327,600 | $1,991,400 | $1,460,360 |
Contribution Margin
| Total sales revenue (Units * SP) | $828,000 | $1,380,000 | $2,070,000 | $1,518,000 |
| Total Variable cost | $796,560 | $1,327,600 | $1,991,400 | $1,460,360 |
| Contribution Margin | $31,440 | $52,400 | $78,600 | $57,640 |
Fixed Cost per Unit
| Budgeted production | 13,000 |
| Budgeted fixed manufacturing overhead | 32500 |
| Fixed Cost per unit | 2.5 |
Total Fixed Cost
| Units sold | 6000 | 10000 | 15000 | 11000 |
| Fixed cost per unit | 2.5 | 2.5 | 2.5 | 2.5 |
| Total fixed manufacturing cost | 15000 | 25000 | 37500 | 27500 |
| Fixed Admin and marketing cost | 25000 | 25000 | 25000 | 25000 |
| Total fixed cost | 40000 | 50000 | 62500 | 52500 |
Net profit/ loss
| July | August | September | October |
| Contribution Margin | $31,440 | $52,400 | $78,600 | $57,640 |
| Total fixed | $40,000 | $50,000 | $62,500 | $52,500 |
| Net profit | -$8,560 | $2,400 | $16,100 | $5,140 |
Net profit under the variable costing method
| Profit Statement Using Absorption Costing |
| For the Three Months to 30 September |
| | July | August | September | October |
| | $ | $ | $ | |
| Sales | $828,000 | $1,380,000 | $2,070,000 | $1,518,000 |
| | | | | |
| Less: Variable Expense | | | | |
| Cost of goods sold at cost | $780,000 | $1,300,000 | $1,950,000 | $1,430,000 |
| Marketing and administrative | $16,560 | $27,600 | $41,400 | $30,360 |
| Total Variable Expense | $796,560 | $1,327,600 | $1,991,400 | $1,460,360 |
| Contribution Margin | $31,440 | $52,400 | $78,600 | $57,640 |
| Less: Fixed Expense | | | | |
| Manufacturing | 15000 | 25000 | 37500 | 27500 |
| Marketing and administrative | 25000 | 25000 | 25000 | 25000 |
| Total Fixed Expense | $40,000 | $50,000 | $62,500 | $52,500 |
| Net Profit (Loss) before tax using absorption | -$8,560 | $2,400 | $16,100 | $5,140 |
Net profit/loss under the absorption costing method
| Profit Statement using Variable Costing |
| For the Three Months to 30 September |
| | July | August | September | October |
| | $ | $ | $ | |
| Sales | $828,000 | $1,380,000 | $2,070,000 | $1,518,000 |
| | | | | |
| Less: Variable Expense | | | | |
| Cost of goods sold at cost | $444,000 | $740,000 | $1,110,000 | $814,000 |
| Marketing and administrative | $16,560 | $27,600 | $41,400 | $30,360 |
| Total Variable Expense | $460,560 | $767,600 | $1,151,400 | $844,360 |
| Contribution Margin | $367,440 | $612,400 | $918,600 | $673,640 |
| Less: Fixed Expense | | | | |
| Manufacturing | 15000 | 25000 | 37500 | 27500 |
| Marketing and administrative | 25000 | 25000 | 25000 | 25000 |
| Total Fixed Expense | $40,000 | $50,000 | $62,500 | $52,500 |
| Net Profit (Loss) before tax | $327,440 | $562,400 | $856,100 | $621,140 |
Work cited
Drury, Colin. Cost and management accounting : an introduction. London: Thomson Learning, 2006. Print.
