The following is the cost information of a product variable manufactur...
Income Statement for Last Year (Absorption Costing)
- Sales Revenue: 90% of 100,000 units sold at Rs. 7
- Sales = 90,000 units × Rs. 7 = Rs. 630,000
- Cost of Goods Sold (COGS):
- Variable Cost = 100,000 units × Rs. 4 = Rs. 400,000
- Fixed Cost (allocated for 100,000 units) = Rs. 200,000
- Total COGS = Rs. 400,000 + Rs. 200,000 = Rs. 600,000
- Gross Profit:
- Gross Profit = Sales Revenue - COGS = Rs. 630,000 - Rs. 600,000 = Rs. 30,000
- Net Income:
- Net Income = Gross Profit = Rs. 30,000
Income Statement for Current Year (Absorption Costing)
- Sales Revenue: 215,000 units sold at Rs. 7
- Sales = 215,000 units × Rs. 7 = Rs. 1,505,000
- Cost of Goods Sold (COGS):
- Variable Cost = 210,000 units × Rs. 4 = Rs. 840,000
- Fixed Cost (allocated for normal capacity of 200,000 units) = Rs. 200,000
- Total COGS = Rs. 840,000 + Rs. 200,000 = Rs. 1,040,000
- Gross Profit:
- Gross Profit = Sales Revenue - COGS = Rs. 1,505,000 - Rs. 1,040,000 = Rs. 465,000
- Net Income:
- Net Income = Gross Profit = Rs. 465,000
Income Statement for Last Year (Variable Costing)
- Sales Revenue:
- Sales = Rs. 630,000 (same as above)
- Variable COGS:
- Variable Cost = Rs. 400,000 (same as above)
- Contribution Margin:
- Contribution Margin = Sales Revenue - Variable COGS = Rs. 630,000 - Rs. 400,000 = Rs. 230,000
- Fixed Costs:
- Total Fixed Costs = Rs. 200,000
- Net Income:
- Net Income = Contribution Margin - Fixed Costs = Rs. 230,000 - Rs. 200,000 = Rs. 30,000
Income Statement for Current Year (Variable Costing)
- Sales Revenue:
- Sales = Rs. 1,505,000 (same as above)
- Variable COGS:
- Variable Cost = Rs. 840,000 (same as above)
- Contribution Margin:
- Contribution Margin = Sales Revenue - Variable COGS = Rs. 1,505,000 - Rs. 840,000 = Rs. 665,000
- Fixed Costs:
- Total