Question

Hayden Corp. has the following data:

Normal capacity                             40,000
Practical capacity                          45,000
Budgeted production                         30,000
Actual production                           35,000
Actual sales (P20 per unit)                 32,000
Standard variable production cost per unit     P12
Budgeted fixed production costs           P135,000

There were no variable cost variances for the year. Fixed costs incurred were equal to the budgeted amount. There were no beginning inventories and no selling or administrative expenses.

Compute the absorption costing income if fixed costs per unit are determined using normal capacity.
Compute the absorption costing income if fixed costs per unit are determined using practical capacity.
Compute the absorption costing income if fixed costs per unit are determined using budgeted production.
Compute the variable costing income.

Answer 1

Absorption Costing Income Statement

	Normal Capacity	Practical Capacity	Budgeted Capacity
Budgeted Fixed Cost	135,000	135,000	135,000
Budgeted Units	40,000	45,000	30,000
Absorption Rate	3.375	3.000	4.500
Actual Production	35,000	35,000	35,000
Overhead Applied	118,125	105,000	157,500
Sale Units	32,000	32,000	32,000
Sales	640,000	640,000	640,000
Less - Variable Cost	-384,000	-384,000	-384,000
Less - Applied Fixed Cost	-118,125	-105,000	-157,500
Net Income	137,875	151,000	98,500

	Variable Costing
Sale Units	32,000
Sales	640,000
Less - Variable Cost	-384,000
Contribution	256,000
Less - Fixed Cost	-135,000
Net Income	121,000