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Pasicolan, Mark Joshua BSA 3206: Absorption Costing

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Mark Joshua Pasicolan

This document contains a case study comparing absorption costing and direct costing methods. It provides details on the company's sales, costs of goods sold, expenses, and net operating income under each method. It also shows the calculations for unit costs, production levels, inventory, and financial statements. Additional details are given on a plan to increase production by 20,000 units and whether this should be approved or not based on the goal of increasing sales. The summary advises using a performance-based bonus system for managers considering overall performance, not just financial metrics.

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Pasicolan, Mark Joshua BSA 3206: Absorption Costing

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Mark Joshua Pasicolan
33 views6 pages
This document contains a case study comparing absorption costing and direct costing methods. It provides details on the company's sales, costs of goods sold, expenses, and net operating income under each method. It also shows the calculations for unit costs, production levels, inventory, and financial statements. Additional details are given on a plan to increase production by 20,000 units and whether this should be approved or not based on the goal of increasing sales. The summary advises using a performance-based bonus system for managers considering overall performance, not just financial metrics.

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This document contains a case study comparing absorption costing and direct costing methods. It provides details on the company's sales, costs of goods sold, expenses, and net operating income under each method. It also shows the calculations for unit costs, production levels, inventory, and financial statements. Additional details are given on a plan to increase production by 20,000 units and whether this should be approved or not based on the goal of increasing sales. The summary advises using a performance-based bonus system for managers considering overall performance, not just financial metrics.

Copyright:

© All Rights Reserved
Download as XLSX, PDF, TXT or read online from Scribd
Download as xlsx, pdf, or txt
33 views6 pages

Pasicolan, Mark Joshua BSA 3206: Absorption Costing

Uploaded by

Mark Joshua Pasicolan
This document contains a case study comparing absorption costing and direct costing methods. It provides details on the company's sales, costs of goods sold, expenses, and net operating income under each method. It also shows the calculations for unit costs, production levels, inventory, and financial statements. Additional details are given on a plan to increase production by 20,000 units and whether this should be approved or not based on the goal of increasing sales. The summary advises using a performance-based bonus system for managers considering overall performance, not just financial metrics.

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Pasicolan, Mark Joshua

BSA 3206

Case Study: Absorption Costing

Absorption Costing
Sales 48,000,000.00
Less: Cost of Goods Sold 37,768,000.00
Gross Margin 10,232,000.00
Less: Selling and administrative expenses
Variable selling and administrative expense 4,000,000.00
Fixed selling and administrative expense 4,560,000.00 8,560,000.00
Net Operating Income 1,672,000.00

Sales COGS/ unit


Unit sold 400,000 DM 57.20
Selling price x 120.00 DL 15.00
48,000,000.00 VFOH 5.00
FFOH 17.22
Cost of Goods Sold COGS/ unit 94.42
Unit sold 400,000
COGS/ unit x 94.42
37,768,000.00

Variable selling and administrative expense


Unit sold 400,000
VSA/ unit x 10.00
4,000,000.00
Direct Costing 1. $2,000,000.00
Sales 48,000,000.00 49,200,000.00
Less: Var Mfg Cost
DM 22,880,000.00 23,452,000.00
DL 6,000,000.00 6,150,000.00
VFOH 2,000,000.00 30,880,000.00 2,050,000.00 31,652,000.00
Contribution margin, Mfg 17,120,000.00 17,548,000.00
Less: Var Op. Exp 4,000,000.00 4,100,000.00
Contribution margin,Final 13,120,000.00 13,448,000.00
Less: Fixed cost
Fixed FOH 6,888,000.00 6,888,000.00
Fixed Op. Exp 4,560,000.00 11,448,000.00 4,560,000.00 11,448,000.00
1,672,000.00 2,000,000.00

Sales Sales
400,000 410,000
x 120.00 x 120.00
48,000,000.00 49,200,000.00

Direct Materials (DM) Direct Materials (DM)


400,000 410,000
x 57.20 x 57.20
22,880,000.00 23,452,000.00

Direct Labor (DL) Direct Labor (DL)


400,000 410,000
x 15.00 x 15.00
6,000,000.00 6,150,000.00

Variable Factory OH Variable Factory OH


400,000 410,000
x 5.00 x 5.00
2,000,000.00 2,050,000.00

Variable Op Expense Variable Op Expense


400,000 410,000
x 10.00 x 10.00
4,000,000.00 4,100,000.00

400,000 410,000
x 87.20 x 87.20
34,880,000.00 35,752,000.00
2. Absorption Costing

Sales 49,200,000.00
Less: Cost of Goods Sold 38,540,000.00
Gross Margin 10,660,000.00
Less: Selling and administrative expenses
Variable selling and administrative expense 4,100,000.00
Fixed selling and administrative expense 4,560,000.00 8,660,000.00
Net Operating Income 2,000,000.00

Sales COGS/ unit


Unit sold 410,000 DM 57.20
Selling price x 120.00 DL 15.00
49,200,000.00 VFOH 5.00
FFOH 16.80
Cost of Goods Sold COGS/ unit 94.00
Unit sold 410,000
COGS/ unit x 94.00
38,540,000.00

Variable selling and administrative expense


Unit sold 410,000
VSA/ unit x 10.00
4,100,000.00
3. Additional units needed to be produced 20,000 units

Var. Mfg. Cost COGS/ Unit


DM 57.20 COGS (2M NOI) 37,440,000.00
DL 15.00 Div: Units sold 400,000.00
VFOH 5.00 COGS/ Unit 93.60
V Mfg Cost/ unit 77.20
F Mfg Cost/ unit
Inventory End COGS/ Unit 93.60
Units produced 420,000 V Mfg Cost/ unit (77.20)
Units sold 400,000 F Mfg Cost/ unit 16.40
Unit inventory, end 20,000
Units Produce
Fixed Mfg Cost 6,888,000.00
Div: F Mfg Cost/ unit 16.4
Units produced 420,000

4. Absorption Costing

Sales 48,000,000.00
Less: Cost of Goods Sold
Inventory, beg -
Add: Current Production
Var. Mfg. Cost (420,000 x 77.50) 32,424,000.00
Fixed Mfg Cost 6,888,000.00
Available goods for sale 39,312,000.00
Less: inventory, end 1,872,000.00 37,440,000.00
Gross Margin 10,560,000.00
Less: Selling and administrative expenses
Variable selling and administrative expense 4,000,000.00
Fixed selling and administrative expense 4,560,000.00 8,560,000.00
Net Operating Income 2,000,000.00

Sales
Unit sold 400,000
Selling price x 120.00
48,000,000.00

Variable selling and administrative expense


Units sold 400,000
VSA/ unit x 10.00
4,000,000.00

Inventory End
Units produced 420,000
Units sold 400,000
Unit inventory, end 20,000
Mfg Cost/ unit x 93.60
1,872,000
5. Approving or Disapproving the plan
Disapprove, by using absorption costing and producing additional units of GPS will
make the net operating income to $2,000,000, it still does not show the good
performance in sale which is still the main goal of the company by reflecting through
increasing the target net operating income, but using absorptiong costing will
maximize the production of the GPS maximizing the fixed manufacturing cost.

6. Advice
To determine the bonuses in the future, the board of directors should use a
performance-based bonus, not purely on financial aspect but on the overall
performance of the managers.

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