Determination Of Income Under Variable Costing Approach (VCA)

We can determine Income under variable costing approach (VCA) as follows:

*Essential Working Notes:

i. Product cost rate, PCR= Total per unit cost of:
* Direct Material
* Direct Labor
* Direct Expenses
* Variable manufacturing overheads

ii. Stock valuation = Units X PCR
iii. Closing stock of finished goods = Opening stock + Actual output - Sales unit
iv. Standard manufacturing fixed costs = SO X FMOR
where, SO = Standard output or budgeted output or normal output or planned output
FMOR = Fixed manufacturing overhead cost per unit.

Income Statement Under Variable Costing Approach(VCA)

Particulars............................................................Amount
A. Sales Revenue (SU X SR)..........................................XXX
B. Variable manufacturing cost of good sold:
i. Direct material (AO X rate)...........................................XXX
ii. Direct labor (AO X rate)...............................................XXX
iii. Direct expenses (AO X rate).......................................XXX
iv. Variable mfg. overheads (AO X rate)..........................XXX
V. opening stock of finished goods.................................XXX
Vi Less: closing stock of finished goods........................(XXX)
C. Total mfg. contribution (A-B).....................................XXX
Less: Total Non-mfg. variable costs.............................(XXX)
D. Total final contribution...............................................XXX
E. Total fixed costs:
i. Manufacturing fixed costs (standard)...........................XXX
ii. Non-manufacturing fixed costs (standard)...................XXX
F. Net income before tax (D-E).......................................XXX

Here,
SU = Sales Unit, SR = Sales Rate, AO = Actual Output, Mfg. Costs = Manufacturing costs.

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