Determination Of Profit Under Absorption Costing Approach (ACA)

Income Statement Under Absorption Costing Approach (ACA)

Working Notes:

1. PCR = PCR as per variable costing approach + FMOR
2. FMOR = Standard fixed manufacturing overheads/ Standard Output
3. Stock Valuation = Units X PCR
4. Capacity Variance = (AO-SO) X Fmor.
5. Non- Mfg. Costs:
* Administrative overhead costs
* Selling overhead costs
* Distribution

Particulars................................................................................Amount
A. Sales Revenue (SU X SR)..........................................................XXX
B. Total Mfg. COGS
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. Fixed Mfg. Overheads (AO X FMOR) ...........................................XXX
vi. Opening stock of finished goods..................................................XXX
vii. Less: Closing stock of finished goods........................................(XXX)
C. Unadjusted Gross Profit (A-B)....................................................XXX
Add: Capacity Variance (If AO>SO)................................................XXX
Or,
Less: Capacity Variance (If AO< SO)..............................................XXX
D. Adjusted Gross Profit...................................................................XXX
E. Total Non-Manufacturing Costs
i. Variable Non-Mfg. Costs (SU X Rate) ..........................................XXX
ii. Fixed Non-Mfg. Costs ( Standard)................................................XXX
Net Income Before Tax (D-E)..........................................................XXX
Here,
SU = Sales Unit, SR = Sales Rate, AO = Actual Output, FMOR = Fixed Manufacturing Overhead Rate, Mfg. COGS = Manufacturing Cost Of Good Sold, SO = Standard Output.

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