Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 194 views

    Absorption and Marginal Costing - Additional Questions

    Uploaded by

    unique gadtaula
    The document contains information about the budgeted profit and loss statement of Surat for December 2001 using marginal costing. It shows sales of $48,000, cost of sales of $32,000, gross contribution of $16,000, other variable costs of $3,200, contribution of $12,800, and fixed costs of $8,800 resulting in a net profit of $4,000. It also provides the standard cost per unit and budgeted selling price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Absorption and Marginal Costing - Additional Questions

    Uploaded by

    unique gadtaula
    194 views6 pages
    The document contains information about the budgeted profit and loss statement of Surat for December 2001 using marginal costing. It shows sales of $48,000, cost of sales of $32,000, gross contribution of $16,000, other variable costs of $3,200, contribution of $12,800, and fixed costs of $8,800 resulting in a net profit of $4,000. It also provides the standard cost per unit and budgeted selling price.

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document contains information about the budgeted profit and loss statement of Surat for December 2001 using marginal costing. It shows sales of $48,000, cost of sales of $32,000, gross contribution of $16,000, other variable costs of $3,200, contribution of $12,800, and fixed costs of $8,800 resulting in a net profit of $4,000. It also provides the standard cost per unit and budgeted selling price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    194 views6 pages

    Absorption and Marginal Costing - Additional Questions

    Uploaded by

    unique gadtaula
    The document contains information about the budgeted profit and loss statement of Surat for December 2001 using marginal costing. It shows sales of $48,000, cost of sales of $32,000, gross contribution of $16,000, other variable costs of $3,200, contribution of $12,800, and fixed costs of $8,800 resulting in a net profit of $4,000. It also provides the standard cost per unit and budgeted selling price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    QUESTION 1: SURAT

    Surat is a small business which has the following budgeted marginal costing profit and
    loss account for the month ended 31 December 2001:
    Particulars Sub-Total ($’000) Total Amount ($’000)
    Sales 48.00
    Cost of sales:
    Opening stock 3.00
    Production costs 36.00
    Closing stock (7.00)
    (32.00)
    Gross Contribution 16.00
    Other variable costs:
    Selling (3.20)
    Contribution 12.80
    Fixed Costs
    Production overheads (4.00)
    Administration (3.60)
    Selling (1.20)
    (8.80)
    Net Profit 4.00

    The standard cost per unit is:


    $
    Direct materials (1 kg) 8.00
    Direct labour (3 hours) 9.00
    Variable overheads (3 hours) 3.00
    20.00
    Budgeted selling price per unit 30.00
    The normal level of activity is 2,000 units per month. Fixed production costs are
    budgeted at $4,000 per month and absorbed on the normal level of activity of units
    produced.
    Required:
    (a) Prepare a budgeted profit and loss account under absorption costing for the
    month ended 31 December 2001.
    (b) Reconcile the profits under these two methods and explain why a business
    may prefer to use marginal costing rather than absorption costing.

    QUESTION 2: OATHALL LIMITED


    Oathall Limited, which manufactures a single product, is considering whether to use
    marginal or absorption costing to report its budgeted profit in its management
    accounts.
    The following information is available:
    $/unit
    Direct materials 4.00
    Direct labour 15.00
    19.00
    Selling price 50.00
    Fixed production overheads are budgeted to be $ 300,000 per month and are
    absorbed on an activity level of 100,000 units per month.
    For the month in question, sales are expected to be 100,000 units although
    production units will be 120,000 units.
    Fixed selling costs of $ 150,000 per month will need to be included in the budget as
    will the variable selling costs of $ 2 per unit.
    There are no opening stocks.
    Required:
    (a) Prepare the budgeted profit and loss account for a month for Oathall
    Limited using absorption costing. Clearly show the valuation of any stock
    figures.
    (b) Prepare the budgeted profit and loss account for a month for Oathall
    Limited using marginal costing. Clearly show the valuation of any stock
    figures.

    QUESTION 3: LANGDALE LTD.


    Langdale Ltd is a small company manufacturing and selling two different products –
    the Lang and the Dale. Each product passes through two separate production cost
    centres – a machining department, where all the work is carried out on the same
    general purpose machinery, and a finishing section. There is a general service cost
    centre providing facilities for all employees in the factory.
    The company operates an absorption costing system using budgeted overhead
    absorption rates. The management accountant has calculated the machine hour
    absorption rate for the machining department as $3·10 but a direct labour hour
    absorption rate for the finishing section has yet to be calculated.
    The following data have been extracted from the budget for the coming year:
    Product Lang Dale
    Sales ( Units ) 6,000.00 9,000.00
    Production ( Units ) 7,200.00 10,400.00
    Direct Material Cost Per Unit $52.00 $44.00
    Direct Labour Cost Per Unit
    machining department ($8 per hour) $72.00 $40.00
    finishing section ($6 per hour) $42.00 $36.00
    Machining department – machine hours per unit 5.00 3.00

    Fixed production overhead costs: $


    machining department 183,120.00
    finishing section 241,320.00
    general service cost centre 82,800.00
    Number of employees:
    machining department 14.00
    finishing section 32.00
    general service cost centre 4.00

    Service cost centre costs are reapportioned to production cost centres.


    Required:
    (a) Calculate the direct labour hour absorption rate for the finishing section.
    (b) Calculate the budgeted total cost for one unit of product Dale only,
    showing each main cost element separately.
    (c) The company is considering a changeover to marginal costing. State with
    reasons, whether the total profit for the coming year calculated using marginal
    costing would be higher or lower than the profit calculated using absorption
    costing. No calculations are required.

    QUESTION 4: ARCHIBALD LTD.


    Archibald Ltd manufactures and sells one product. Its budgeted profit statement for
    the first month of trading is as follows;
    Particulars Sub-Total Total Amount
    Sales (1,200 units at $180 per Unit ) 216,000.00
    Cost of sales:
    Production (1,800 units at $100 per unit 180,000.00
    Less : Closing Stock (600 units at $100 per unit) (60,000.00)
    (120,000.00)
    Gross profit 96,000.00
    Less : Fixed Selling and Distribution costs: (41,000.00)
    Net Profit 55,000.00

    The budget was prepared using absorption costing principles. If budgeted production
    in the first month had been 2,000 units then the total production cost would have
    been $188,000.
    Required:
    (a) Using the high-low method, calculate:
    (i) the variable production cost per unit; and
    (ii) the total monthly fixed production cost.
    (b) If the budget for the first month of trading had been prepared using
    marginal costing principles, calculate:
    (i) the total contribution; and
    (ii) the net profit.
    (c) Explain clearly the circumstances in which the monthly profit or loss would
    be the same using absorption or marginal costing principles.

    QUESTION 5 : PINAFORE LTD.


    Pinafore Ltd manufactures and sells a single product. The budgeted profit statement
    for this month, which has been prepared using marginal costing principles, is as
    follows:
    Particulars Sub-Total Total Amount
    ($’000) ($’000)
    Sales (24,000 units) 864.00
    Less Variable production cost of sales:
    Opening stock (3,000 units) 69.00
    Production (22,000 units) 506.00
    Closing stock (1,000 units) (23.00)
    (552.00)
    Gross Contribution 312.00
    Other variable costs:
    Selling (60.00)
    Contribution 252.00
    Fixed Costs
    Production overheads (125.00)
    Selling and Administration (40.00)
    (165.00)
    Net Profit 87.00

    The normal monthly level of production is 25,000 units and stocks are valued at
    standard cost.

    Required:
    (a) Prepare in full a budgeted profit statement for this month using absorption
    costing principles. Assume that fixed production overhead costs are absorbed
    using the normal level of activity.
    (b) Prepare a statement that reconciles the net profit calculated in (a) with the
    net profit using marginal costing.
    (c) Which of the two costing principles (absorption or marginal) is more
    relevant for short-run decision-making, and why?

    You might also like