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Sivan Co. manufactures and sells one product. For the year, they started with no opening
inventory; produced 100,000 units but only sold 70,000 units. The selling price per each unit is
$80.
The variable costs per unit were:
Direct materials.........................7
Direct Labor .............................6
variable manufacturing overhead....5
variable selling and administrative….6
Fixed costs per year:
Fixed manufacturing Overhead ................$700,000
Fixed Selling and Administrative expenses….$300,000
(a) Prepare the Income Statement using Absorption Costing.
(b) Prepare the Income Statement using Variable Costing.
Solution
a. absorption costing means that all costs are absorbed by the units being made. So all overheads
and fixed costs will be included.
b. Under this method, variable costs are considered.
Formula Amount
Revenue 70000*80 5,600,000
less: direct materials 70000*7 -490,000
less: direct labor 70000*6 -420,000
less: variable manufacturing overhead 70000*5 -350,000
less: fixed manufacturing overhead -700,000
Gross profit 3,640,000
less: variable selling and administive 70000*6 -420,000
less:fixed selling and administrative -300,000
Net Profit 2,920,000
Sivan Co- manufactures and sells one product- For the year- they start (1).docx

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Sivan Co- manufactures and sells one product- For the year- they start (1).docx

  • 1. Sivan Co. manufactures and sells one product. For the year, they started with no opening inventory; produced 100,000 units but only sold 70,000 units. The selling price per each unit is $80. The variable costs per unit were: Direct materials.........................7 Direct Labor .............................6 variable manufacturing overhead....5 variable selling and administrative….6 Fixed costs per year: Fixed manufacturing Overhead ................$700,000 Fixed Selling and Administrative expenses….$300,000 (a) Prepare the Income Statement using Absorption Costing. (b) Prepare the Income Statement using Variable Costing. Solution a. absorption costing means that all costs are absorbed by the units being made. So all overheads and fixed costs will be included. b. Under this method, variable costs are considered. Formula Amount Revenue 70000*80 5,600,000 less: direct materials 70000*7 -490,000 less: direct labor 70000*6 -420,000 less: variable manufacturing overhead 70000*5 -350,000 less: fixed manufacturing overhead -700,000 Gross profit 3,640,000 less: variable selling and administive 70000*6 -420,000 less:fixed selling and administrative -300,000 Net Profit 2,920,000