Varagon” corp. has the following data available: Variable manufacturing cost of
ID: 2615087 • Letter: V
Question
Varagon” corp. has the following data available:
Variable manufacturing cost of goods sold (6.60.000.00 )
Total manufacturing cost of goods sold. (7.10.000.00)
gross profit (260 000 ) and gross profit margin (28.26 % )
Contribution (170 000 ) and Contribution margin.(18.48% )
Net income (40 000 )
Using the above data and calculations, , and taking in consideration that all produced goods are also sold and no inventories are kept, please calculate the following:
prepare the income statement according to the absorption method and the variable (contribution) method.
Sales Direct materials used Direct labour Variable indirect manufacturing cost Fixed indirect manufacturing cost Variable selling- and administrative expenses 90.000,00 Fixed selling-and adminstrative expenses 80.000,00 920.000,00 350.000,00 210.000,00 100.000,00 50.000,00Explanation / Answer
The major difference between absorption method and variable(contribution) method is that under absorption method both variable and fixed costs are reduced at once whereas under contribution method first contribution is calculated and then fixed cost is deducted. Contribution helps the compay to know its operating cash flows.
The solution to the above question is:
Particulars
Absorption Method
Particulars
Contribution Method
Direct Material Cost
35000000
Sales
92000000
Direct Labour
21000000
Less:
Prime Cost
56000000
Variable cost
75000000
Factory Cost
15000000
Fixed Cost
-
Factory Overheads
71000000
Contribution
17000000
Selling & Administration Overheads
17000000
Less:
Cost of Sales
88000000
Fixed Cost
13000000
Profit(balancing Figure)
4000000
Profit
4000000
Sales
92000000
Particulars
Absorption Method
Particulars
Contribution Method
Direct Material Cost
35000000
Sales
92000000
Direct Labour
21000000
Less:
Prime Cost
56000000
Variable cost
75000000
Factory Cost
15000000
Fixed Cost
-
Factory Overheads
71000000
Contribution
17000000
Selling & Administration Overheads
17000000
Less:
Cost of Sales
88000000
Fixed Cost
13000000
Profit(balancing Figure)
4000000
Profit
4000000
Sales
92000000
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