INVENTORY COSTING

Problem 1:
The data below relates to a company which makes and sells computers:
MARCH
APRIL
Sales
5,000
10,000
Production
10,000
5,000
Selling price per unit
100
100
Variable production cost per unit
50
50
Fixed production overhead incurred
1,00,000
1,00,000
Fixed production overhead cost per unit
10
10
Selling and distribution cost (all fixed)
50,000
50,000
You are required to present comparative profit statements for each month using:
1. Absorption costing
2. Variable costing
Problem 2:
ABC motors assemble and sell motor vehicles. It uses an actual costing system, in
which unit costs are calculated on a monthly basis. Data relating to March and
April 2014 are:
MARCH
APRIL
Unit data
Beginning inventory
0
150
Production
500
400
Sales
350
520
Variable cost data
Manufacturing cost per unit produced
10,000
10,000
Distribution costs per unit sold
3,000
3,000
Fixed cost
Manufacturing costs
20,00,000
20,00,000
Marketing costs
6,00,000
6,00,000
The selling price of the vehicle is Rs 24,000
Required:
1. Present the income statement for ABC Motors in March and April 2014
under a) Variable costing b) Absorption costing
2. Explain the difference between the (a) and (b)for March and April

Problem 3:
Your company has a production capacity of 2,00,000 units per year. Normal
capacity utilization is reckoned as 90%. Standard variable production costs are Rs
11 per unit. The fixed costs are Rs 3,60,000 per year. Variable selling costs are Rs 3
per unit and fixed selling costs are Rs 2,70,000 per year. The unit selling price is
Rs 20. In the year just ended on 31st March 2013 the production was 1,60,000 units
and sales were 1,50,000 units. The closing inventory on 31.03.2013 was 20,000
units. The actual variable production costs for the year were Rs 35,000 higher than
the standard.
1. Calculate the profit for the year under absorption and variable costing
2. Explain the difference in the profits