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Example 2

The company produced a single product and provided financial information for January through March 2005. Production and sales varied each month from 1000 to 1300 units and 800 to 1100 units respectively. Absorption and marginal costing statements were prepared for the three months. Under absorption costing, fixed factory overhead was applied to production while under marginal costing fixed overhead was excluded from the cost of goods sold. Both methods calculated contribution margins and profits differently for the periods.

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129 views5 pages

Example 2

The company produced a single product and provided financial information for January through March 2005. Production and sales varied each month from 1000 to 1300 units and 800 to 1100 units respectively. Absorption and marginal costing statements were prepared for the three months. Under absorption costing, fixed factory overhead was applied to production while under marginal costing fixed overhead was excluded from the cost of goods sold. Both methods calculated contribution margins and profits differently for the periods.

Uploaded by

malingaperera
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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A company started its business in 2005.

The following information Was available for January to March 2005 for the company that produced A single product:
RS

Selling price pre unit Direct materials per unit Direct Labour per unit Fixed factory overhead per month Variable factory overhead per unit Fixed selling overheads Variable selling overheads per unit Budgeted activity was expected to be 1000 units each month Production and sales for each month were as follows: Jan Feb Unit sold 1000 800 Unit produced 1000 1300

100 20 10 30000 5 1000 4

March 1100 900

Required: Prepare absorption and marginal costing statements for the three months

Absorption costing
January February March

$ Sales 100000 Less: cost of good sold (Rs65)65000 Adjustment for Over-/(under) Absorption of factory overhead Gross profit 35000 Less: Expenses Fixed selling overheads 1000 Variable selling overheads 4000 Net profit 30000

$ 80000 52000 28000


9000 37000 1000 3200 32800

$ 110000 71500 38500


(3000) 35500 1000 4400 30100

Marginal costing
Sales Less: Variable cost of good sold ($35) 35000 Product contribution margin 65000 Less: Variable selling overhead4000 Total contribution margin 61000 Less: Fixed Expenses Fixed factory overhead 30000 Fixed selling overheads 1000 Net profit 30000 January $ 100000 February March $ $ 80000 110000

28000 52000 3200 48800


30000 1000 32800

38500 71500 4400 67100


30000 1000 30100

Wk1: Standard fixed overhead rate = Budgeted total fixed factory overheads Budgeted number of units produced = $30000 1000 units = $30 units

Wk 2: Production cost per unit under absorption costing: Direct materials Direct labour Fixed factory overhead absorbed Variable factory overheads

20 10 30 5 65

Wk 3: (Under-)/Over-absorption of fixed factory overheads: January February March $ $ $ Fixed overhead 30000 39000 27000 Fixed overheads incurred 30000 30000 30000 0 9000 (3000)
1000*$30 1300*$30 900*$30

Wk 4: Variable production cost per unit under marginal costing: $

Direct materials Direct labour Variable factory overhead


No fixed factory overhead

20
10 5 35

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