Suggested Answer: -

Particulars
Production
Sales
Opening stock
Closing stock
# 1000 units are from 1st six months

First Six Months

25000
26000
5000
4000

Second Six Months

18000
20000
4000
2000#

Statement showing Income statement as per Absorption costing

Particulars

Sales

Per Unit

Total

Per Unit

Total

500

13,000,000

500

10,000,000

Direct Material

180

4,500,000

190

3,420,000

Direct Labour

120

3,000,000

130

2,340,000

Variable Factory Overhead

40

1,000,000

30

540,000

Fixed Factory/Mfg. overhead

(Absoption rate)

25

625,000

25

450,000

365

9,125,000

375

6,750,000

(5000 x 360*)

1,800,000
(1,460,000)

Less: Production cost

Prodn. cost of goods produced

(25000 Units)
Add: Opening Stock
Less: Closing Stock

(4000 x 365)

1,460,000
(1000 x 365)#
(1000 x 375)

(740,000)

Prodn. Cost of goods sold

9,465,000

7,470,000

Gross Profit (unadjusted)

(A-B)

3,535,000

2,530,000

Add: Over-absorption of fixed Mfg. O/h

Less: under-absorption of fixed Mfg. O/h

Gross Profit (adjusted)

Less: Selling and Admin. Exps

(5000 x 25)

---------------

125,000
--------------

3,660,000

------------(2000 x 25)

-------------(50,000)

2,480,000

Variable (Rs. 35 per unit)

Fixed (300000 x 6/ 12)

Operating Profit

(910,000)
(150,000)

(700,000)
(150,000)

2,600,000

1,630,000

# 1000 units are from 1st six months

* value of opening stock given in the question

Statement showing Income statement as per Variable Costing

Particulars

Sales

Per Unit

Total

Per Unit

Total

500

13,000,000

500

10,000,000

Direct Material

180

4,500,000

190

3,420,000

Direct Labour

120

3,000,000

130

2,340,000

40

1,000,000

30

540,000

340

8,500,000

350

6,300,000

Add: Opening Stock

(5000 x 320*)

1,600,000

Less: Closing Stock

(4000 x 340)

Less: Variable Production cost

Variable Factory Overhead

V. Prodn. cost of goods produced

(25000 Units)

(1,360,000)

1,360,000
(1000 x 340)#
(1000 x 350)

V. Prodn. Cost of goods sold

Contribution (manufacturing)

Less: Variable Selling and Admin. Exps

Contribution (final)

Less: Fixed Manufacturing overhead

(690,000)

8,740,000

6,970,000

(A-B)

4,260,000

3,030,000

(910,000)

(700,000)

3,350,000

2,330,000

(500,000)

(500,000)

Fixed Selling and Admin. Exps

Operating Profit

(150,000)

(150,000)

2,700,000

1,680,000

# 1000 units are from 1st six months

* value of opening stock given in the question
Difference in profits under two methods is because of inclusion of fixed manufacturing
overhead in production cost for the valuation of opening stock and closing stock of
finished goods in absorption costing.