Management Accounting

Absorption costing and variable costing

Part-B
Problem-1 (N.U. Mgt -2018): CDC Ltd. produces a single product .Data for last years operations are as follows:

Accounts titles Tk.

Units produced 21,500 units
Variable cost per unit : Tk.
Direct materials 5.00
Direct labour 8.00
Variable manufacturing overhead 2.00
Variable selling & administrative overhead 1.00
Fixed cost : 16.00
Fixed manufacturing overhead
86,000
Fixed selling & administrative overhead
40,000
Required: (a) Compute the unit product cost under variable costing (b) Compute the unit product cost under
absorption costing .

Problem-2 ( N.U. Fin 2018) Sonaly company Ltd. manufacturers bicycle for the use on city street :

Beginning inventory units 0

Units produced 10,000
Units sold 8,000
Selling price per unit Tk. 500
Manufacturing cost :
Direct materials cost per unit Tk.120
Direct labour cost per unit Tk.140
Variable manufacturing overhead per unit Tk.50
Fixed manufacturing overhead Tk.6,00,000
Required: (i) Determine the unit product cost under absorption costing (ii) Determine the unit product cost
under variable costing .

Problem- 3 (N.U.2014) Tangail Ltd. produces a single products. Data for lastyear,s operations are as follows:

Units produced 20,000

Variable cost per unit: Tk.
Direct materials 5.00
Direct labour 8.00
Variable manufacturing overhead 2.00
Variable selling & administrative overhead 1.00
16.00
Fixed cost : 80,000
Fixed manufacturing overhead
40,000
Fixed selling & administrative overhead
1,20,000

Required: (i) Compute the unit product cost under variable costing (ii) Compute the unit product cost under
absorption costing .
Problem-4 ([Link] 2016) You have given the following informations of Rahman Brothers:

Sales price tk. 24 per unit

Variable manufacturing cost tk. 10 per unit
Variable overhead costtk. 4 per unit
Fixed overhead tk. 3 per unit (based on capacity 10,000 units)
Fixed marketing expense tk. 8,000
Production 8,000 units, sales 5,000 units.
Prepare income statement using absorption costing .

Problem-5 (N.U. Fin -2017) Dhaka manufacturing company produces one product. Its cost includes direct
materials tk. 10 per unit, direct labor tk.8 per unit, variable manufacturing overhead tk. 6 per unit, fixed
manufacturing overhead tk. 2,50,000 and selling & administrative overhead tk. 30,000. In October 2012, Dhaka
manufacturing Co. produced 25,000 units and sold 20,000 units at tk. 50 each.
Required:
(i) Calculate product cost per unit under variable costing
(ii) Prepare a variable costing income statement.

Problem-6 ([Link] 2020) MM company produces a single products. Following data is available for the month
of June 2021:

Units produced 25,000

Variable cost per unit: Tk.
Direct materials 10.00
Direct labour 8.00
Variable factory overhead 5.00
Variable selling & distribution expense 2.00
Variable office & administrative expense 2.00

Fixed cost : Tk.50,000

Factory overhead 20,000
Fixed selling &distribution exp. 30,000
Fixed office & administrative exp.
Required: (i) Compute the unit product cost under variable costing (ii) Compute the unit product cost
under absorption costing .

Problem-7 (NU-2017, Mgt) The following data are for the East-West Ltd.:

January February
Sales (in units) 4,000 6,000
Production (in units) 8,000 2,000
Sales per unit Tk. 20 Tk. 20
Fixed factory overhead Tk. 24,000 Tk. 24,000
Direct manufacturing cost per unit Tk. 10 Tk. 10
Fixed factory overhead per unit Tk. 3 Tk. 3
Selling and administrative exp. Tk. 8,000 Tk. 8,000
You are required to prepare comparative income statement based on absorption costing method.
Problem-8(NU-2016, Actg) : NUHA Ltd. has the following data:

Year 1 Year 2
Beginning inventory as per VC Nil 40,000
Beginning inventory as per AC Nil 58,000
Ending inventory as per VC 40,000 Nil
Ending inventory as per AC 58,000 Nil
Profit as per VC 50,000 50,000
Profit as per AC 68,000 32,000

Prepare a Reconciliation Statement .

Problem-9 (NU-2020, Fin) Sonali Co. Ltd. manufacturers bicycle for the use on city street :

Beginning inventory 00
Units produced 10,000
Units sold 8,000
Selling price per unit Tk. 500
Manufacturing cost:
Direct material cost per unit Tk.120
Direct labor cost per unit Tk.140
Variable manufacturing overhead per unit Tk. 50
Fixed manufacturing overhead Tk. 6,00,000
Required: Determine the unit product cost under absorption costing .

Problem-10(NU-2022, Fin) Meghna Ltd. supplies you the following data for the month of June, 2023

Beginning inventory Nil

Sales units 6,000
Production units 9,000
Selling price per unit Tk. 25
Direct manufacturing exp. per unit Tk. 14
Fixed factory overhead total Tk. 30,000
Commercial exp. (Fixed) Tk. 12,000

Prepare (i) Income statement under direct costing and absorption costing (ii) Reconciliation
statement.
 Part-C

Problem-11(N.U.-Actg 2016) The following particulars are available from the books of a company for
the year ended 2016:

Sales :1,50,000 kgs, sales price tk. 20 per kg.

Finished goods inventory (1-1-2016) 24,000 kgs
Finished goods inventory (31-12-2016) 35,000 kgs.
Manufacturing cost :
Variable cost per kg tk. 8
Fixed factory overhead tk. 1,60,000 (normal capacity 1,60,000 kgs)
Marketing and Admin exp:
Variable cost per kg of sales @ tk. 1.00
Fixed marketing and admin expense tk 3,00,000
Standard costing system is used.
Required: (i) Income statement under absorption costing
(ii)Income statement under variable costing system
Problem-12(N.U.-Mgt 2016) Nahidcompany is comparing its present absorption costing practice with
direct costing method. An examination of its record produced the following information:
Budgeted production 40,000 units
Budgeted fixed factory overhead tk. 80,000
Fixed marketing and administrative exp. tk. 20,000
Sales price per unit tk. 12.00
Standard variable manufacturing cost per unit tk. 5.00
Variable marketing exp. per unit tk. 1.00
For the year following data are available:
Actual production 32,000 units
Actual sales 29,000 units
Finished goods inventory, January 1 1,000 units
Unfavourable variance from standard variable cost tk. 5,000
Required: (i) Prepare an income statement under direct costing
(ii)Prepare an income statement using absorption costing .
Problem-13(N.U.-Mgt 2018) BSRM company is comparing its absorption costing practice with variable
costing method. An examination of its produced the following information :

Budgeted production 45,000 units

Budgeted fixed factory overhead Tk. 85,000
Fixed marketing & administrative expenses Tk. 25,000
Sales price per unit Tk. 15
Standard variable manufacturing cost per unit Tk. 7
Variable marketing exp. per unit Tk. 2
For the year ended the following data are available :
Actual production 35,000 units
 Actual sales units 34,000 units
Finished goods inventory January 1 1,200 units
Unfavorable variance from standard cost Tk. 7,000
Required:
(a) Prepare variable costing income statement
(b) Prepare absorption costing income statement

Problem-14(N.U. Mgt 2017, Mgt. 2021) Jamunacorporation produced 24,000 units (normal
capacity) of product. During the year 20,000 units were sold @ tk. 22 per unit.

Direct materials 60,000

Direct labour 60,000
Factory overhead:
Variable cost 1,20,000
Fixed cost 96,000
Marketing & administrative expense for the year tk. 70,000 , all are fixed.
Required:
(i) Income statement under absorption costing and variable costing
(ii) Reconciliation statement.

Problem-15(N.U.-Actg 2017) Sabuj Ltd. Is comparing its present absorption costing practice with
variable costing method. An examination of its records revealed the following information :

Budgeted production 45,000 units

Budgeted fixed factory overhead Tk. 1,35,000
Fixed marketing & administrative expense Tk. 15,000
Sales price per unit Tk. 20
Standard variable manufacturing cost per unit Tk. 8
Variable marketing exp. per unit Tk. 2
For the year the following data are available :
Actual production 40,000 units
Actual sales 35,000 units
Finished stock inventory (opening) 2,000 units, Unfavourable variance from standard cost tk. 8,000.

Required: Income statements & Reconciliation statements.

Problem-16(N.U. Fin 2019) ACI Ltd. Has the following data for the first two years storing in 2017.
Basic production data at standard cost are as follows:

Direct materials 13.00

Direct labour 15.00
Variable overhead 2.00
Fixed overhead (Tk. 15,00,000/1,50,000 units) 10.00
Total standard factory cost per unit
 Selling price per unit tk. 50 40.00

Fixed selling & administrative expense tk. 6,50,000. Sales commission 5% of sales value.
Output, sales and inventory (in units) :
2017 tk. 2018 tk.
Beginning inventory 30,000
Production 1,70,000 1,40,000
Sales 1,40,000 1,60,000
Ending inventory 30,000 10,000
Required:
(a) An income statement for two years under variable costing
(b) An income statement for two years under absorption costing
(c) A reconciliation statement for two years.

Problem-17(N.U.-Actg 2018, NU-2021,Mgt) Sky corporation uses a standard costing system in

accounting for one of its products, which it sells for tk. 30 per unit. The standard cost per unit is:

Direct materials Tk. 8

Direct labour Tk. 7
Variable factory overhead Tk. 2
Fixed factory overhead (Normal capacity of 60,000 units) Tk. 3
20

All variances are closed to cost of goods sold. On May 1, there were 10,000 units of product on
hand. During May 50,000 units were produced and 45,000 units were sold.
Costs incurred during May were:

Direct materials 3,95,000

Direct labour 3,60,000
Variable factory overhead 1,05,000
Fixed factory overhead 1,85,000
Variable marketing & administrative exp. 60,000
Fixed marketing & administrative exp. 75,000
Required: (i) Prepare an income statement under variable costing (ii) Prepare an income
statement under absorption costing.

Problem-18(N.U.-Fin 2016) The following data is available for the month of April :

Beginning finished goods 4,000 units

Sales 20,000 units
Actual production 24,000 units
Sales price per unit Tk. 30
Variable manufacturing cost per unit:
 Direct materials Tk. 4
Direct labour Tk. 3
Variable production overhead Tk. 2
Fixed production overhead Tk. 50,000
Normal production in units 50,000

Commercial expense (Fixed) tk. 10,000 and variable tk. 10,000, Administrative exp. (Fixed ) tk. 5,000.
Required:
(i) Prepare income statement applying variable costing and absorption costing
(ii) Prepare reconciliation statement.

Problem-19(N.U. Fin – 2017) The following particulars are available from the books of company for the year
ended 2016 : Sales 75,000 kgs, Finished goods inventory (January 1, 2016) 12,000 kgs, Finished goods
inventory ( December 31, 2016) 17,000 kgs, Sales price tk. 10 per unit, Variable cost of production tk. 4 per
kg, Fixed factory overhead tk. 1,60,000 (normal capacity 80,000 kgs), Variable & fixed marketing and
administrative expense are tk. 1 per kg of sales and tk. 1,50,000 respectively. Standard costing system is
used.

Required:
(i) Income statement for 2016 under absorption costing and direct costing method.
(ii) Reconcile the difference, if any.

Problem-20 (N.U.-Actg 2015) ABC Ltd. Produces a product whose related information for the year ended
December 31, 2014 is as follows:

Beginning inventory 20,000 units

Normal capacity 1,00,000 units
Production during the year 90,000 units
Ending inventory 30,000 units
Direct material cost per unit Tk. 20
Direct labour cost Tk. 6
Variable factory overhead per unit Tk. 5
Selling price per unit Tk. 40
Annual fixed factory overhead Tk. 1,00,000
Fixed administrative & marketing exp. Tk. 60,000
Variable administrative & marketing exp. Tk. 40,000

Required: Prepare an income statement for the year using direct costing and absorption costing
method.

Problem-21 (N.U. Fin 2018) Ahamed supplies you the following data:

Normal capacity 1,000 units

Beginning inventory 200 units
Production 900 units

Sales 1,000 units Tk. 10.00 per unit

Materials cost Tk. 2.00 per unit
 Labour Tk. 2.00 per unit
Variable overhead Tk. 1.00 per unit
Fixed manufacturing exp. Tk. 2,700
Fixed selling exp. Tk. 1,300
Unfavorable variable cost variance from standard Tk. 200
Required : (a) Income statement under absorption costing method
(b)Income statement under variable costing method

Problem-22(N. U. Actg 2019) The following data is available for the month of July, 2018 of Sakib Ltd.

Beginning inventory units Nil

Sales units 8,000 units
Production units 10,000 units
Sales price per unit Tk. 40
Variable manufacturing cost per unit Tk. 12
Fixed factory overhead per unit Tk. 5
Fixed factory overhead total Tk. 35,000
Fixed commercial expenses Tk. 18,000
Required: (i) Prepare income statement under variable costing and absorption costing
(ii)Prepare a reconciliation statement.
Problem-23(N.U.-2017) Dexter company produces & sells a single product . Selected cost & operating data
relating to the product for two years are given below:

Selling price per unit tk. 60 Fixed manufacturing overhead per year tk. 1,20,000
Direct materials per unit tk. 10 Variable selling & Administrative per unit tk. 5
Direct labour per unit tk. 6 Fixed selling & administrative per year tk. 70,000
Variable manufacturing overhead tk. 4

Year-1 Year-2
Units in beginning inventory 0 1,000
Units produced during the year 10,000 6,000
Units sold during the year 9,000 7,000
Units in ending inventory 1,000 0
Required:

i. Prepare an income statement for each year using variable costing and absorption costing .
ii. Prepare the reconciliation statement.

Problem-24 (NU- 2020, Actg): The following particulars are available from the books of a manufacturing
concern:

Normal capacity 20,000 units

Standard variable manufacturing cost per unit Tk. 15
Variable marketing exp. per unit sold Tk. 5
Fixed factory overhead Tk. 40,000
Fixed marketing exp. Tk. 25,000
Selling price per unit Tk. 30
Selected data for the company,s operations in the last year were as follows:

Beginning inventory 2,000 units

Sales 17,500 units
Production 18,000 units
Required: Prepare Income statement using variable costing and absorption costing .
Problem-25 (NU-2018, Fin) Ahmed Ltd. uses Absorption costing system. The president had recently hear about
variable costing. However, he supplied you the following data:

Normal capacity 1,000 units, Beginning inventory 200 units, Production 900 units, Sales 1,000 units @ tk. 10.00
per unit. Material cost tk. 2.00 per unit, Labor tk. 2.00 per unit, Variable overhead tk. 1.00 per unit. Fixed
manufacturing expenses tk. 2,700, fixed selling exp. tk. 1,300 . Unfavorable variable cost variance from standard
tk. 200.

Required: Income Statement under:

(a) Absorption costing method (b) Variable costing method.

Problem-26(NU-Mgt. 2020, Fin-2022) The Martin company sells its razors at tk. 3 per unit. The company uses
FIFO actual costing system. A new fixed manufacturing overhead allocation rate is computed each year by
dividing the actual fixed manufacturing overhead cost by the actual production units. The following data are
related to it,s first two years operation:
Year 1 Year 2
Sales 1,000 units 1,200 units
Production 1,400 units 1,000 units
Cost: Tk. Tk.
Variable manufacturing cost 700 500
Fixed manufacturing cost 700 700
Variable marketing and administrative 1,000 1,200
Fixed marketing and administrative 400 400
Required:
(i) Prepare Income statement under each of the year under VC and under AC
(ii) Prepare a reconciliation statement .
Problem-27(NU-2022, Actg) Tasnia Traders sells its product for tk. 30 per unit. The standard cost per unit is:
Direct material 10
Direct labor 7
Variable factory overhead 3
Fixed factory overhead (Normal capacity 20,000 units ) 4
Total 24
At the beginning there were 5,000 units of products on hand. During the year 15,000 units were produced and
15,000 units were sold per year, selling exp. tk. 20,000 plus 5% on sales.

Required: Income statement under variable costing and absorption costing.