Question

1. Last month a manufacturing company's profit was NS2 000, calculated using absorption costing principles. If marginal costing principles has been used, a loss of N$3 000 would have occurred. The company's fixed production cost is N$2 per unit. Sales last month were 10 000unit.

What was last month's production (in units)?

2. HELAO Ltd uses a process costing system. During the month they put 250 units of total manufacturing costs of N$16 875. The company has estimated that the normal loss would be 10%

What's the unit cost of a "good unit" ?

3. For the current year Paxman Company incurred N$150 000 in actual manufacturing overhead cost. The manufacturing overheads account showed that overheads were over-applied to the amount of N$6 000 for the year. If the predetermined overhead rate was N$ 8 per direct labour hour, how many hours were worked during the year?

4. You are the management accountant at one of the famous NWR Resorts offering special packages for holidaymakers. Accommodation facilities are in the form of chalets with a capacity of five (5) family members per chalet. For the whole month of December 2019, it hosted 300 holidaymakers, which only 95% of full capacity, and all Chalets were fully occupied. Package 1 has a daily rate of N$ 120.00 per person. Package 2 has a daily rate of N$ 200,00 per person, and the sales mix ratio is 60:40, respectively. Monthly variable costs are N$ 350 000 for package 1 and N$ 400 000 for package 2 with combined fixed costs of N$ 300 000.

a)How much revenue was required to break even in December?

b)Due to the Covid-19 impact on the tourism industry, revenue is projected to decrease by 30% and variable costs by 15% Using the same information how much revenue will be required to break even in the next month?

5. A company has the following budgeted costs and revenues:

Sales = N$ 50
Variable production cost = N$ 18
Fixed production cost =N$ 10

In the most recent period, 2000 units were produced and 1 000 units were sold. Actual sales price, variable production cost per unit and total fixed production costs were all as budgeted. Fixed production costs were over-absorbed by N$4000. There was no opening inventory for the period.

What would be the reduction in profit for the period if the company has used marginal costing rather than absorption costing?

Answer 1

Ans 1.
Particulars	Amt N$
Profit using Absorption costing	2000
Loss using Marginal Costing	3000
Difference of Earning between Absorption
costing and Marginal Costing =	5000
Difference in Earning between two costing system
happens because of valuation difference in stock
arising out of absorption of fixed cost is Absorption
costing
Now Fixed cost per unit production =	2
So 5000 difference comes from =5000/2=	2500 Units
Sales in last month =	10000 units
Assuming no opening stock ,
Clsoing stock =2500 units
So Production for the month=10000+2500=	12500 Units

Ans 2.
HELAO Ltd
Normal loss is absorbed in the Production process
and the no of units produced is decreased.
Here 250 units was put to Process.
Normal loss =10% =25 units
Good Units Produced =225 Units
Production cost =NS 16875
Unit cost of Good unit=16875/225=75

Ans 3.
Predetermined OH rate =N$ 8 /Direct Labor Hour
Assume X hours worked during the year
Overhead absorbed during the year=8*x
Overhead overapplied by N$6000
Actual Overhead for the yea8*x-6000.
Actual Overhead Given =N$150,000
So 150,000=8*x-6000
or, 8*x=156,000
x=19500
So Actual Hrs worked in the year =19500 Hrs

	Ans 4.
	Details	Package 1	Package 2
	Sales Mix	60	40
	Daily rate N$ per person	120	200
a	Weighetd Rate per person=120*0.6+200*0.4=N$ 150/person
	No of Holiday makers in Full Capacity=300/95%=316
	Assuming variable cost per month is at full capacity as it is not clearly mentioned.
	Variable cost per month	350000	400000
	Variable cost per day	11,666.67	13,333.33
	Variable cost /day/person=Daily cost/316=	36.92	42.19
b	Weighetd Variable cost/day /person in 60:40 mix=0.60*36.92+0.40*42.19=39.03
c	Weighted Contribution Margin /Day /person=a-b=150-39.03=		110.97
d	Contribution Margin % =110.97/150=73.98%
e	Combined fixed cost=N$300000
f	Required Revenue to break even in Dec =300000/73.98%=N$ 405,515			Ans a

Ans b.
Due to COVID 19 situation revenue will decrease by 30% and variable cost by 15%
So Revised weighted revenue per person /day =N$150*0.7=N$105
Revised weighted var cost /day/person =N$39.03*0.85=N$33.18
Revised Contribution Margin/Day /person=105-33.18=N$71.82
Revised Contribution Margin %=71.82/105=68.4%
Combined fixed cost=N$300000
Revised Break Even Revenue=300000/68.4%=N$ 438,596