The following is the cost information of a product variable manufactur...
Income Statement for Last Year (Absorption and Variable Costing)
- Units Produced: 210,000
- Units Sold: 200,000
- Selling Price: ₹7 per unit
- Variable Manufacturing Cost: ₹4 per unit
- Fixed Manufacturing Costs: Assume ₹8,00,000 (calculated based on normal capacity)
1. Absorption Costing
- Sales Revenue:
- 200,000 units x ₹7 = ₹14,00,000
- Cost of Goods Sold (COGS):
- Variable Cost: 200,000 units x ₹4 = ₹8,00,000
- Fixed Cost Allocation: ₹8,00,000 (entire fixed cost allocated to produced units)
- Total COGS: ₹8,00,000 + ₹8,00,000 = ₹16,00,000
- Gross Profit:
- Sales Revenue - COGS = ₹14,00,000 - ₹16,00,000 = -₹2,00,000
- Net Income:
- Gross Profit - Operating Expenses (assumed as ₹2,00,000) = -₹2,00,000 - ₹2,00,000 = -₹4,00,000
2. Variable Costing
- Sales Revenue:
- As calculated above: ₹14,00,000
- Variable COGS:
- 200,000 units x ₹4 = ₹8,00,000
- Contribution Margin:
- Sales Revenue - Variable COGS = ₹14,00,000 - ₹8,00,000 = ₹6,00,000
- Net Income:
- Contribution Margin - Fixed Costs = ₹6,00,000 - ₹8,00,000 = -₹2,00,000
Income Statement for Current Year (Absorption and Variable Costing)
- Units Produced: 210,000
- Units Sold: 215,000
- Selling Price: ₹7 per unit
1. Absorption Costing
- Sales Revenue:
- 215,000 units x ₹7 = ₹15,05,000
- COGS:
- Variable Cost: 215,000 units x ₹4 = ₹8,60,000
- Fixed Cost: ₹8,00,000
- Total COGS: ₹8,60,000 + ₹8,00,000 = ₹16,60,000
- Gross Profit:
- ₹15,05,000 - ₹16,60,000 = -₹1,55,000
- Net Income:
- -₹1,55,000 - ₹2,00,000 = -₹3,55,000
2. Variable Costing
- Sales Revenue:
- ₹15,05,000
- Variable COGS:
- ₹8,60,000
- Contribution Margin:
- ₹15,05,000 - ₹8,60,000 = ₹6,45,000
- Net Income:
- ₹6