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a) Mulwa Ltd a manufacturing company produced 10,000 units of 2kg unga product during the first...

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Accounting

  1. a) Mulwa Ltd a manufacturing company produced 10,000 units of2kg unga product during the first quarter of 2013. The followingadditional information is also provided
  • Direct material – ksh 8
  • Direct labour - ksh 4
  • Variable manufactury – 2
  • Fixed manufacturing cost – ksh 36,000
  • Selling and administration cost – ksh 5,000
  • Selling price – ksh 20 per cent
  • Closing stock at the end of the period = 1000 units.

Required:

  1. Determine the unit production cost of the product usingmarginal and absorption costingmethods                                                     
  2. Prepare an income statement for the period using absorption andmarginal costtechniques.                                                              

Answer & Explanation Solved by verified expert
4.3 Ratings (748 Votes)

i)Calculation of Unit Product Cost- Absorption Costing

Direct Material $       8.00
Direct Labor $       4.00
Variable Manufactured $       2.00
Fixed Manufactured Cost $       3.60
Cost per unit $    17.60

Calculation of Unit Product Cost- Marginal Costing

Direct Material $       8.00
Direct Labor $       4.00
Variable Manufactured $       2.00
Cost per unit $    14.00

ii) Income Statement- Absorption Costing

Sales $ 180,000.00
Cost of Production $ 176,000.00
Less: Closing Inventory $ (17,600.00)
Cost of Goods Sold $ 158,400.00
Gross Profit $    21,600.00
Selling and administration cost   $      5,000.00
Net Profit $    16,600.00

Income Statement- Marginal Costing

Sales $ 180,000.00
Variable Cost $ 126,000.00
Contribution Margin   $    54,000.00
Fixed Cost $    41,000.00
Net Profit $    13,000.00

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