A manufacturing company with normal capacity of 50,000 units supplied you with the following details for the year ending Chaitra. Fixed manufacturing cost: Rs. 100,000 Net income under variable…

Reconciliation of Profit Under Absorption Costing

1. Calculate Fixed Manufacturing Cost per Unit (FMCU): $$\text{FMCU}=\frac{\text{Fixed Manufacturing Cost}}{\text{Normal Capacity}}=\frac{100,000}{50,000}=\text{Rs. 2 per unit}$$

2. Determine Under/Over-Absorption:

   • Units Produced: 55,000
   • Normal Capacity: 50,000
   • Over-Absorption: $(55,000-50,000)\times 2=\text{Rs. 10,000}$

3. Adjust Net Income (Variable Costing) to Absorption Costing: $$\text{Profit (Absorption Costing)}=\text{Net Income (Variable Costing)}+\text{Over-Absorption}$$ $$=70,000+10,000=\text{Rs. 80,000}$$

Final Answer: Rs. 80,000