Income Statement Analysis for Pesona Sdn.Bhd. in January 2019
How can we analyze Pesona Sdn.Bhd.'s income statement for January 2019?
What are the differences between Marginal Costing and Absorption Costing?
Analysis of Income Statement:
Marginal Costing Method:Sales Revenue (60,000 units * RM40.00) = RM2,400,000
Less: Variable Costs:
- Direct Material Cost (60,000 units * RM10.00) = RM600,000
- Direct Labour Cost (60,000 units * RM4.00) = RM240,000
- Variable Overhead Cost (60,000 units * RM2.50) = RM150,000
- Variable Sales and Distribution Cost (60,000 units * RM1.50) = RM90,000
Total Variable Costs = RM1,080,000
Contribution Margin = RM1,320,000
Less: Fixed Costs = (RM80,000)
Absorption Costing Method:Sales Revenue (60,000 units * RM40.00) = RM2,400,000
Less: Cost of Goods Sold:
- Direct Material Cost (60,000 units * RM10.00) = RM600,000
- Direct Labour Cost (60,000 units * RM4.00) = RM240,000
- Variable Overhead Cost (60,000 units * RM2.50) = RM150,000
- Fixed Production Overhead Cost = RM175,000
Total Cost of Goods Sold = RM1,165,000
Gross Profit = RM1,235,000
Less: Operating Expenses:
- Variable Sales and Distribution Cost (60,000 units * RM1.50) = RM90,000
- Fixed Sales and Distribution Cost = RM80,000
- Fixed Administration Cost = RM120,000
Total Operating Expenses = RM290,000
Operating Profit = RM945,000
Income statements are crucial financial documents that provide insights into a company's profitability. In January 2019, Pesona Sdn.Bhd. produced and sold 60,000 units of a particular product. By utilizing both Marginal Costing and Absorption Costing methods, we can analyze the company's financial performance.
Marginal Costing vs. Absorption Costing:
The key difference between Marginal Costing and Absorption Costing lies in the treatment of fixed production overhead costs. Marginal Costing treats fixed overhead costs as period costs, while Absorption Costing includes them in the cost of goods sold. This leads to variance in the calculation of operating profit between the two methods.
Calculating the income statement using Marginal Costing, the company incurred a loss of RM80,000 due to higher fixed costs exceeding the contribution margin. On the other hand, when applying Absorption Costing, the company achieved an operating profit of RM945,000 after deducting total operating expenses from the gross profit.
It is crucial for businesses to understand the implications of different costing methods on their financial reporting and decision-making processes. By analyzing income statements using various techniques, companies can make informed choices to optimize their profitability and operational efficiency.