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Irish Corporation

Irish Corporation uses a standard costing system to value inventory and calculate variances. For the year 200A: 1. There were favorable variances for materials and variable overhead, and an unfavorable variance for labor costs. 2. Under absorption costing, net income was $6,776, while variable costing reported net income as $5,276, a difference of $1,500. This difference is due to the change in inventory valued using a fixed overhead rate of $10 per unit.

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Angeline Ramirez
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891 views3 pages

Irish Corporation

Irish Corporation uses a standard costing system to value inventory and calculate variances. For the year 200A: 1. There were favorable variances for materials and variable overhead, and an unfavorable variance for labor costs. 2. Under absorption costing, net income was $6,776, while variable costing reported net income as $5,276, a difference of $1,500. This difference is due to the change in inventory valued using a fixed overhead rate of $10 per unit.

Uploaded by

Angeline Ramirez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Irish Corporation uses a standard costing system for a product that it manufactures.

For the
year 200A, the following standards were established based on normal production of 1,000
units:
Total Cost
Materials 2pcs. @ P6 per piece P12
Labor 5hrs. @ P4 per hour 20
Variable overhead 5 hrs. @ P3 per hour 15
Fixed factory overhead (5 hrs @ P2) 10
Total labor cost per unit P57

Following are the actual data for the year 200A:


Production 1,100 units
Sales 950 units
Selling price P 80
Materials (2,250 @ P5.80) 13,050
Labor (5,420 hrs. @ P4.30 per hour) 23,306
Variable overhead 15,718
Fixed factory overhead 12,000
Selling and administrative expenses: Variable 5,700
Fixed 8,000

Required:

1. Variable for each cost element of production

Materials Labor Variable FOH Fixed FOH


Actual costs P13,050 P23,306 P15,718 P12,000
Standard costs* 13,200 22,000 16,500 11,000
Variances P 150 F P 1,306 U P 782 F P 1,000 U

* Standard costs = actual production x standard cost per unit


Materials 1,100 x P12 = P13,200
Labor 1,100 x 20 = 22,000
Variable FOH 1,100 x 15 = 16,500
Fixed FOH 1,100 x 10 = 11,000
‘
2. Comparative Income Statements - Absorption and Variable Costing
Absorption
Variable Costing
Costing
Sales (950 units x P80) P76,000 P76,000

Cost of goods sold/Variance costs:


Standard cost of goods sold:
(950 x P57) P54,150
(950 x P47) P44,650
Add (Deduct) varaines:
Materials – favorable ( 150 ) ( 150)
Labor – unfavoble 1,306 1,306
Variable OH – favorable ( 782) ( 782)
Fixed OH – unfavorable 1,000 -

Actual cost of goods sold P55,524 P45,024


Add variable selling and
administrative expenses - 5,700
Total cost of goods sold/Variable costs P55,524 P50,724
Gross income/Contribution margin P20,476 P25,276

Less Operating Expenses/Fixed costs:


Fixed FOH P - P12,000*
Fixed selling and
administrative expenses 8,000 8,000
Variable selling and administrative expenses
5,700 -
Total operating expenses/Fixed costs P13,700 P20,000
Income P 6,776 P 5,276

* The total actual fixed overhead cost incurred during the period.

Differences in income (P6,776 – P5,276) P1,500


Accounted for as follows:
Change in inventory [Production – Sales]
(1,100 – 950) 150 units
x Fixed FOH cost per unit P 10
Difference in income P1,500

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