Absorption vs Variable Costing

1 Application

Prepare the Absorption Costing Statement and the Variable Costing Statement for the following data. Explain your workings / calculations

Selling price per unit 10

Variable cost per unit:

Direct material 2

Direct Labour 3

Production overhead 1

Selling and distribution 1

Fixed cost:

Production budgeted 8000

Actual 8500 in year 1 & 2

8000 in year 3

Selling and distribution Budget and actual 2000

Activity Levels year 1 year 2 year 3

Budgeted Production 4000 4000 4000

Actual Sales 4200 4000 4000

Actual production 4400 3800 4000

Opening Stock 0 200 0

Closing stock 200 0 0

How does this case study illustrate the arguments in support of variable or absorption costing?