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The following data were taken from the records of a company                                                Period 1       Period 2      Period 2          Production                     30,000         38,000          27,000            Sales                              30,000        27,000          38,000            Opening Stock                   -                                 11,000            Closing Stock                                  11,000 All the...

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Accounting

The following data were takenfrom the records of a company

                                              Period 1       Period2      Period 2

        Production                    30,000        38,000         27,000

          Sales                             30,000       27,000         38,000

          OpeningStock                  -                                11,000

          ClosingStock                                 11,000

All the above inKgs

The firm makes a singleproduct the financial details of which are as follows (based on anormal

activity level of 30,000kgs).

                                                                    Cost per Kg (£)

            Directmaterial                                                 1.50

            Directlabour                                                    1.00

            Production overheads (300% oflabour         3.00

                                                                                       5.50

Selling price per kg.£9

Administrative overheads arefixed at £25,000 and one third of the production overheadsare

fixed. Prepare separateoperating statements on marginal costing and absorption costingprinciples

Answer & Explanation Solved by verified expert
4.1 Ratings (766 Votes)

Solution :

Computation of Unit Product Cost - Variable Costing
Particulars Year 1 Year 2 Year 3
Unit Product Cost:
Direct material £1.50 £1.50 £1.50
Direct Labor £1.00 £1.00 £1.00
Variable manufacturing overhead £2.00 £2.00 £2.00
Unit product cost £4.50 £4.50 £4.50
Computation of Unit Product Cost - Absorption Costing
Particulars Year 1 Year 2 Year 3
Unit Product Cost:
Direct material £1.50 £1.50 £1.50
Direct Labor £1.00 £1.00 £1.00
Variable manufacturing overhead £2.00 £2.00 £2.00
Fixed manufacturing overhead
($30,000 / Nos of unit produced)		 £1.00 £0.79 £1.11
Unit Product Cost £5.50 £5.29 £5.61
Income Statement - Absorption Costing
Particulars Year 1 Year 2 Year 3
Details Amount Details Amount Details Amount
Sales £270,000.00 £243,000.00 £342,000.00
Cost of Goods Sold:
Cost of goods produced £165,000.00 £201,000.00 £151,500.00
Less: Ending Inventory £0.00 £58,190.00 £0.00
Add: Opening Inventory £0.00 £165,000.00 £0.00 £142,810.00 £58,190.00 £209,690.00
Gross Profit £105,000.00 £100,190.00 £132,310.00
Administrative overhead £25,000.00 £25,000.00 £25,000.00
Net Operating Income £80,000.00 £75,190.00 £107,310.00
Income Statement - Variable Costing
Particulars Per Unit Year 1 Year 2 Year 3
Sales £9.00 £270,000.00 £243,000.00 £342,000.00
Variable Costs:
Variable manufacturing Costs £4.50 £135,000.00 £121,500.00 £171,000.00
Contribution Margin £4.50 £135,000.00 £121,500.00 £171,000.00
Fixed Expenses:
Fixed manufacturing overhead £30,000.00 £30,000.00 £30,000.00
Fixed Administrative overhead £25,000.00 £25,000.00 £25,000.00
Net Operating Income £80,000.00 £66,500.00 £116,000.00

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