Question

COST ACCOUNTING
ASSIGNMENT – CASE STUDY
Read the case study below and answer the questions that follow.

Ma Baker produce a mini-kitchen called Small Cook, which is enjoying extensive popularity
amongst young children. The following data is available for the month:
Selling price (per unit) R116

Units in opening inventory
600
Units manufactured
2 550
Units sold
3 050
Units in closing inventory
100
Variable costs per unit:
Direct materials
R12,00
Direct labour
R50,00
Variable manufacturing overhead
R6,50
Variable selling and administrative
R10,00
Fixed costs:
Fixed manufacturing overhead
R81 000
Fixed selling and administrative
R14 000
The company produces the same number of units every month, although the sales in units
vary from month to month. The company’s variable costs per unit and total fixed costs have
been constant from month to month.

Questions:
(where applicable, round off amounts to two decimal places)
1.
Calculate the unit product cost for the month under variable costing.
(3)
2.
Calculate the unit product cost for the month under absorption costing.
(3)
3.
Prepare an income statement for the month using the absorption costing method.
(6)
4.
Prepare an income statement for the month using the variable costing method.
(6)
5.
Reconcile the variable and absorption costing net operating incomes for the
month.
(2

Answer 1

1&2)

Unit product cost
Particulars	Absoption	Variable
Direct material	12	12
Direct labor	50	50
Variable Manufacturing Overhead	6.5	6.5
Fixed Manufacturing Overhead	31.76
Unit Cost	100.26	68.5

3.

Absorption costing income statement
Particulars	Amount(R)
Sales (R116 x 3050)	353800
Less: Cost of goods sold (100.26 x 3050)	(305793)
Gross profit	48007
Less: Operating Expenses
Variable selling and administrative expenses (R10 x 3050)	(30500)
Fixed selling and administrative expenses	(14000)
Operating Income	3507

4.

Variable Costing Income Statement
Particulars	Amount (R)
Sales ( R116 x 3050)	353800
Variable Expense:
Variable cost of goods sold (R68.5 x 3050 )	(208925)
Variable selling and administrative expense (R10 x 3050)	(30500)
Total variable expenses	(239425)
Contribution Margin	114375
Fixed expenses:
Fixed manufacturing overheads	81000
Fixed selling and administrative expenses	14000
Total fixed expenses	95000
Net operating income or loss	19375

5)

Reconcile the variable costing and absorption costing Net income
	Amount
Variable costing net operating income (loss)	3507
Add (Deduct) Fixed manufacturing overheads cost Deferred in (released from) inventory ( multiplied by 31.76)	15880
Absorption costing net operating income or loss	19375

The difference is due to rounding off, If you take full digits then the amount 19375 will get.

Workings:

Fixed manufacturing overhead per unit = Fixed manufacturing overhead / Units produced

= R81000 / 2550

=31.76

Please rate, Thanks.