THUMB Ltd, which manufactures a single product, is consideringwhether to use absorption costing or marginal costing to report itsbudgeted profit in its management accounts. The followinginformation is available:
K /unit Direct materials 4.00
Direct labour 15.00
Total 19.00
Selling price 50.00
Fixed production overheads are budgeted to be K300,000 per monthand are absorbed on an average activity level of 100,000 units permonth. For the month of April 2020, sales are expected to be100,000 units although production units will be 120,000 units.Fixed selling costs of K150,000 per month will need to be includedin the budget as will the variable selling costs of K2.00 per unit.There are no opening inventories expected at 1 April 2020.Required: (a) Prepare the budgeted statement of profit or loss forthe month of April 2020 for THUMB Ltd using absorption costing.Clearly show the valuation of any inventory figures. [6 Marks] (b)Prepare the budgeted statement of profit or loss for the month ofApril 2020 for THUMB Ltd using marginal costing. Clearly show thevaluation of any inventory figures.
