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.

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

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