Nuraz Sdn Bhd (NSB) manufactures modern vase in northern areas and the price per unit is RM50. Currently, company uses absorption costing and the owner is considering to change the reporting method to variable costing. Thus, he asked the accountant to show the difference in income using both methods. To do so, the accountant rely on the information below: Production 70,000 units Beginning finished goods inventory 17,500 units Sales RM3,125,000 Direct materials RM840,000 Direct labor RM630,000 Variable manufacturing overhead RM280,000 Variable selling and administrative expenses RM700,000 Fixed manufacturing overhead RM350,000 Fixed selling and administrative RM700,000 REQUIRED: 1. Calculate ending finished goods inventory (in RM) using: Absorption costing. Variable costing. 2. Without preparing income statement, calculate the different in income reported under absorption costing and variable costing. 3. The company expects to increase the number of inventory during next year. In this situation, explain which method will report greater income, and why. 4. Explain the usage of absorption costing and variable costing system.
QUESTION 4 (TOPIC 8)
Nuraz Sdn Bhd (NSB) manufactures modern vase in northern areas and the price per unit is RM50. Currently, company uses absorption costing and the owner is considering to change the reporting method to variable costing. Thus, he asked the accountant to show the difference in income using both methods. To do so, the accountant rely on the information below:
|
Production |
70,000 units |
|
Beginning finished goods inventory |
17,500 units |
|
Sales |
RM3,125,000 |
|
Direct materials |
RM840,000 |
|
Direct labor |
RM630,000 |
|
Variable manufacturing overhead |
RM280,000 |
|
Variable selling and administrative expenses |
RM700,000 |
|
Fixed manufacturing overhead |
RM350,000 |
|
Fixed selling and administrative |
RM700,000 |
REQUIRED:
1. Calculate ending finished goods inventory (in RM) using:
- Absorption costing.
- Variable costing.
2. Without preparing income statement, calculate the different in income reported under absorption costing and variable costing.
3. The company expects to increase the number of inventory during next year. In this situation, explain which method will report greater income, and why.
4. Explain the usage of absorption costing and variable costing system.
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