Question

Bellingham line has just completed its first year operations. The unit costs on a normal costing
basis are as follows:
Manufacturing cost per unit
Direct materials (2kgs @ $2) $4.00
Direct hours (1.5hrs @ $9) $13.50
Variable overhead (1.5hrs @ $2) $3.00
Fixed overhead (1.5hrs @$3) $4.50
Total $25.00
Selling and administrative costs:

Variable cost per unit	$5.00
Fixed cost $190.00
During the year the company had the following activities:
Units produced 24 000
Units sold 21 500

Unit selling price $42
Direct labour hours worked 36 000
Actual fixed overhead was 12 000 less than the budgeted fixed overhead.
Budgeted variable overhead was $5 000 less than the actual variable overhead. The company
used an expected activity level of 36 000 direct labour hours to compute the predetermined
overhead rates. Any overhead variances are closed to cost of goods sold.
Required
a) Compute the unit cost using
i. Absorption costing.
ii. Marginal costing.
b) Prepare the absorption costing income statement.
c) Prepare the marginal costing income statement.

Answer 1

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