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# 1-Prepare an income statement based on the absorption costing concept-.docx

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Horngrenima14e ch13
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# 1-Prepare an income statement based on the absorption costing concept-.docx

1.Prepare an income statement based on the absorption costing concept.
2. Prepare an income statement based on the variable costing concept.
Describe how ?
Solution
I am giving an example from a source mentioned:
http://www.accountingformanagement.org/exercise-2-vaac/
Suppose income and cost data is given
AGA company manufactures and sells a product for \$20/Kg. The data for the last year is given below:
Let us prepare Absorbtion costing
(a) Absorption costing:
80,000Kg
Analysis of absorption costing
(b)Variable costing:
There is differnce in net income of variable cost and absorbtion costing due to change in treatment of fixed overheads. In absorbtion costing fixed over heads are prorated over the quantity of goods sold, where as variable costing fixed costs are seperate and taken as whole for the entire period
Thus if production quantity is greater than sold quantity, net profit will be more in absorbtion costing campared to variable costing

.

1.Prepare an income statement based on the absorption costing concept.
2. Prepare an income statement based on the variable costing concept.
Describe how ?
Solution
I am giving an example from a source mentioned:
http://www.accountingformanagement.org/exercise-2-vaac/
Suppose income and cost data is given
AGA company manufactures and sells a product for \$20/Kg. The data for the last year is given below:
Let us prepare Absorbtion costing
(a) Absorption costing:
80,000Kg
Analysis of absorption costing
(b)Variable costing:
There is differnce in net income of variable cost and absorbtion costing due to change in treatment of fixed overheads. In absorbtion costing fixed over heads are prorated over the quantity of goods sold, where as variable costing fixed costs are seperate and taken as whole for the entire period
Thus if production quantity is greater than sold quantity, net profit will be more in absorbtion costing campared to variable costing

.