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Costing Methods Analysis for Toy Company

1) Adriel Company makes toy cars that sell for $1,000 each. In 2018, they had beginning inventory of 5 cars, produced 60 cars, sold 50 cars, and had ending inventory of 15 cars. Variable and fixed costs for materials, labor, and overhead are provided. 2) Mikey Company uses FIFO costing. In 2018, they produced 10,000 units, had no beginning inventory, and ended with 3,500 units of inventory. Sales, variable costs, and fixed costs for 2018 and 2019 are given. 3) The problems require calculating inventory costs, income statements, and profits for 2018 and 2019 under both absorption and variable costing and reconciling the differences between the two

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480 views4 pages

Costing Methods Analysis for Toy Company

1) Adriel Company makes toy cars that sell for $1,000 each. In 2018, they had beginning inventory of 5 cars, produced 60 cars, sold 50 cars, and had ending inventory of 15 cars. Variable and fixed costs for materials, labor, and overhead are provided. 2) Mikey Company uses FIFO costing. In 2018, they produced 10,000 units, had no beginning inventory, and ended with 3,500 units of inventory. Sales, variable costs, and fixed costs for 2018 and 2019 are given. 3) The problems require calculating inventory costs, income statements, and profits for 2018 and 2019 under both absorption and variable costing and reconciling the differences between the two

Uploaded by

Lerma Mariano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
  • Problem 1: Adriel Company
  • Problem 2: Mikey Company

PROBLEM 1:

Adriel Company makes state-of-the-art toy car. Solution Guide - Require


Each toy car sells for P1,000 each.
Data for 2018's operations are as follows.
DM
Units DL
Beginning Inventory 5 VFOH
Production 60 SOLD 50 FFOH
Ending Inventory 15 C.I 10 Total

Variable Costs
Direct Materials ₱ 18,000 Solution Guide - Require
Direct Labor ₱ 12,000 Absorption
Factory Overhead ₱ 6,000 S
Selling & Administrative ₱ 2,000 COS
GP
Fixed Costs OPEX
Factory Overhead ₱ 15,000 Ay
Selling & Administrative ₱ 1,000

Required:
1) Determine the inventory cost per unit under
1A) Absorption costing 850
1B) Variable Costing 600
2) Determine the total cost of ending inventory under
2A) Absorption costing 12750
2B) Variable Costing 9000
3) Prepare income statement under
3A) Absorption costing
3B) Variable Costing
4) How much is the difference in income between the two costing methods?
5) What causes the difference in income between the two costing methods?
Solution Guide - Requirement 1:
Absorption Variable
Total Per Unit Total Per Unit
18,000 300 18000 300
12,000 200 12000 200
6,000 100 6000 100
15,000 250
51,000 850 36000 600

Solution Guide - Requirement 3:


Absorption Variable
50,000 S 50,000
42,500 VC 32,000
7,500 CM 18000
3,000 FC 16000
4500 Vy 2000

2500
PROBLEM 2:

The following information are taken from the books of Mikey Company, which assumes FIFO for inven

Inventory (in units) 2018 2019


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

Sales (P2 per unit) ??? ???


Variable manufacturing costs (P0.75 per unit) ₱ 7,500 ₱ 6,750
Fixed manufacturing costs ₱ 5,000 ₱ 5,400
Selling and administrative ccosts (50% variable) ₱ 4,500 ₱ 7,500

Required:
1) Determine the 2018 profit under variable and absorption costing.
2) Reconcile the two profit figures in 2018.
3) Determine the 2019 profit under variable and absorption costing.
4) Reconcile the two profit figures in 2019.
ch assumes FIFO for inventory cost flow:

Solution Guide:
2018
Absorption Variable
13000 S 13,000 S 13,000
COS -8,125 VC -7,125
GP 4,875 CM 5,875
OPEX -4500 FC -7,250
Ay 375 Vy -1,375

2019
Absorption Variable
S 23,000 S 23,000
COS -15,175 VC -12,375
GP 7,825 CM 10,625
OPEX -7500 FC -9,150
Ay 325 Vy 1,475

PROBLEM 1: Adriel Company makes state-of-the-art toy car. Solution Guide - Require Each toy car sells for P1,000 each. Data
Solution Guide - Requirement 1: Absorption Variable Total Per Unit Total Per Unit 18,000 300 18000 300 12,000 200 12000 200
PROBLEM 2: The following information are taken from the books of Mikey Company, which assumes FIFO for inven Inventory (in un
ch assumes FIFO for inventory cost flow: Solution Guide: 2018 Absorption Variable 13000 S 13,000 S 13,000 COS -8,125 VC -7,1

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