Differentiate between Variable and Absorption costing with a suitable numerical example and explain what would be the changes in Net Operating Income under both the costing methods.

Assignment Question(s):

Q1. Differentiate between Variable and Absorption costing with a suitable numerical example and explain what would be the changes in Net Operating Income under both the costing methods.

Answer

.

Q2. ABC prepares budgets for the quarter ending June 30. Sales in units: April 20,000, May 50,000, June 30,000, July 25,000. Selling price is SR 10 per unit. , inventory in March 31, is 4,000 units. Desired inventory is 20% of the next month sales.

Required: Prepare sales and production budgets.

 

Q3. The Net Present Value Method uses the concept of Time Value of Money when evaluating Capital Budgeting Decisions.

Required: Explain criteria to accept or reject investment projects based on net present value method.

Q4. ABC Company has a car and it considers whether to sell it directly at a price of SR 100,000 or to make some modifications costing SR 10,000 to sell it at a price of SR 120,000.

Required: using the differential analysis which alternative do you recommend about the car.

Answer:

Alternative 1

Sell without modifications

Alternative 2

Sell after modifications

Differential
Revenues
Modification costs
Differential income

Q5. Use the following information about the calendar-year cash flows of MacArthur Company to prepare a statement of cash flows (direct method) and a schedule of noncash investing and financing activities.

Cash and cash equivalents, beginning-year balance $18,000
Cash and cash equivalents, year-end balance 78,750
Cash payments for merchandise inventory 75,750
Cash paid for store equipment 15,750
Cash borrowed on three-month note payable 22,500
Cash dividends paid 12,000
Cash paid for salaries 39,000
Cash payments for other operating expenses 48,000
Cash received from customers 220,500
Cash interest received 8,250