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Lucky Sdn Bhd intends to manufacture and supply new product in year 2021 for which the following information is provided: Per unit RM15
Lucky Sdn Bhd intends to manufacture and supply new product in year 2021 for which the following information is provided: Per unit RM15.00 Selling price Direct materials: Material A Material B RM1.50 per unit RM1.00 per unit Direct labour Production overhead RM0.90 per unit RM5.00 per unit Additional Information: i. Included in the production overhead cost per unit is the fixed production overhead. of RM 3.00 per unit. ii. Variable selling and distribution overhead is 10% of sales value. iii. The company activity level for the first two months of year 2021 is expected to be: Production units Sales units January 10,000 6,000 February 10,000 10,000 Required: a. Prepare the budgeted profit statement for the month of January and February 2020 using the Variable and Absorption Costing method. b. Reconcile the net income/loss under Absorption and Variable Costing method.
Expert Solution
a)
| Variable Costing Income Statement | |||||
| Particulars | January | February | |||
| Sales | $ 90,000.00 | $ 1,50,000.00 | |||
| Less: | Variable Expenses | ||||
| Variable Cost of Goods sold | $ 32,400.00 | $ 54,000.00 | |||
| Variable Selling and Dist. OH | $ 9,000.00 | $ 15,000.00 | |||
| Total Variable Expenses | $ 41,400.00 | $ 69,000.00 | |||
| Contribution Margin | $ 48,600.00 | $ 81,000.00 | |||
| Less: | Fixed production overhead | $ 30,000.00 | $ 30,000.00 | ||
| Operating Income | $ 18,600.00 | $ 51,000.00 | |||
| Absorption Costing Income Statement | |||||
| Sales | $ 90,000.00 | $ 1,50,000.00 | |||
| Less: | Cost of Goods sold | $ 50,400.00 | $ 84,000.00 | ||
| Gross Margin | $ 39,600.00 | $ 66,000.00 | |||
| Less: | Variable Selling and Dist. OH | $ 9,000.00 | $ 15,000.00 | ||
| Operating Income | $ 30,600.00 | $ 51,000.00 | |||
| b) | Reconciliation Statement | |||||
| January | February | |||||
| Operating income under variable costing | $ 18,600.00 | $ 51,000.00 | ||||
| Add: | Fixed production overhead deferred in | |||||
| inventory ($ 3 x 4000 units) | $ 12,000.00 | $ - | ||||
| Operating income under absorption costing | $ 30,600.00 | $ 51,000.00 | ||||
Workings:
| Computation of product cost per unit | ||||
| Particulars | Variable | Absorption | ||
| Direct Materials | $ 2.50 | $ 2.50 | ||
| Direct Labor | $ 0.90 | $ 0.90 | ||
| Variable Production Overhead | $ 2.00 | $ 2.00 | ||
| Fixed Production Overhead | $ - | $ 3.00 | ||
| $ 5.40 | $ 8.40 | |||
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