ADDITIONAL PROBLEMS

Variable and Absorption Costing:

The following information are taken from the books of Accounting Lecture Series
Co.:

Inventory (in units) 2025 2026

Beginning inventory None ???
Production 10,000 units 9,000 units
Ending inventory 3,500 units 1,000 units

Sales (P 2 per unit) ??? ???

Variable manufacturing costs (P 0.75 per unit) P 7,500 P 6,750
Fixed manufacturing costs 5,000 5,400
Selling and Administrative costs (60% variable) 4,500 7,500

Required:
A. Assume FIFO for inventory cost flow:
1. Determine the 2025 profit under variable and absorption costing.
2. Reconcile the 2 income figures in no. 1
3. Determine 2026 profit under variable and absorption costing.
4. Reconcile the two income figures in No. 3
B. Assume Average for inventory cost flow:
1. Determine the 2025 profit under variable and absorption costing.
2. Reconcile the 2 income figures in no. 1
3. Determine 2026 profit under variable and absorption costing.
4. Reconcile the two income figures in No. 3
Activity Based Costing:
Mr. Accounting Manufacturing has the following budgeted overhead costs for 2030:

Types of costs Amount

Electric power P 1,000,000
Work cells 6,000,000
Material handling 2,000,000
Quality control inspections 2,000,000
Product runs ( machine setup) 500,000
Total budgeted overhead costs P 11,500,000

For the last five years, the cost accounting department has been charging overhead
production costs based on machine hours. The estimated budgeted capacity for
2030 is 2,000,000 machine hours.

The president of Candice Manufacturing recently attended a seminar on activity-

based costing. He now believes that ABC results in more reliable cost data that, in
turn, will give the company an edge in pricing over its competitors. At the
president’s request, the production manager provided the following data regarding
expected 2030 activity for the cost drivers of the preceding budged overhead costs.

Types of costs Activity drivers

Electric power 200,000 kilowatt hours
Work cells 1,200,000 square feet
Material handling 500,000 material moves
Quality control inspections 400,000 inspections
Product runs (machine set-up) 50,000 product runs

The vice president of marketing received an offer to sell 5,000 doors to a local
construction company. The VP asked the head of the cost accounting department to
prepare costs estimates for producing the 5,000 doors. The head of cost accounting
accumulated the following data concerning production of 5,000 doors.

Direct material cost P 200,000

Direct labor cost 400,000
Machine hours 10,000
Direct labor hours 20,000
Electric power – kilowatt hours 2,000
Work cells – square feet 12,000
Number of material handling moves 120
Number of quality control inspections 60
Number of product runs (set-up) 30

Requirements: Determine the following:

1. Predetermined overhead rate under the traditional method _________
2. Cost per door as presently accounted for _________
3. Cost per door under the proposed ABC method _________