In: Accounting
Storm cost and revenue
Per unit
Item |
J |
K |
Selling Price |
£45 |
£100 |
Direct materials costs |
£10 |
£ 18 |
Direct wages costs (variable) |
£ 4 |
£ 6 |
Variable overhead cost |
£ 2.50 |
£ 3 |
Machine hours |
2 hours |
3 hours |
Fixed production overhead costs are budgeted at £2,000,000 per quarter. Normal production is planned to be 500,000 machine hours per quarter.
Budgeted selling and distribution costs are as follows:
Variable £1.50 per unit sold
Fixed £800,000 per quarter
Budgeted administration costs are £1,200,000 per quarter. The company allocates production overheads to products based on machine hours.
The following pattern of sales and production is expected during the first six months of the year:
Production is higher than sales in order to meet seasonal demand in July – September.
January – March |
April – June |
|
Sales (units) |
J 80,000 |
J 70,000 |
K 90,000 |
K 80,000 |
|
Production (units) |
J 110,000 |
J 110,000 |
K 120,000 |
K 130,000 |
|
There is no stock on January 1st
You should assume that actual fixed costs for the two quarters were the same as budgeted fixed costs.
Required:
(c) State and explain briefly why companies might decide to use marginal costing as the basis of management reporting.
2. Compare and contrast the different worldviews on which ABC and Throughput Accounting are based.
a.
i)
Preparation of profit statements under Marginal costing | |||
SI.No | Particulars | Jan - Mar | Apr-Jun |
1 | Sales | ||
Product J (80000*45), (70000*45) | 3600000 | 3150000 | |
Product K (90000*100), (80000*100) | 9000000 | 8000000 | |
12600000 | 11150000 | ||
2 | Direct materials | ||
Product J (110000*10), (110000*10) | 1100000 | 1100000 | |
Product K (120000*18), (130000*18) | 2160000 | 2340000 | |
3 | Direct Labour | ||
Product J (110000*4), (110000*4) | 440000 | 440000 | |
Product K (120000*6), (130000*6) | 720000 | 780000 | |
4 | Variable Overhead cost | ||
Product J (110000*2.5), (110000*2.5) | 275000 | 275000 | |
Product K (120000*3), (130000*3) | 360000 | 390000 | |
5 | Total (2+3+4) | 5055000 | 5325000 |
6 | Opening stock | ||
Product - J (1980000*30000/120000) | 0 | 495000 | |
Product - K (3510000*30000/130000) | 0 | 810000 | |
7 | Total (5+6) | 5055000 | 6630000 |
8 | Closing Stock | ||
J-30000 units---> (10+4+2.5)*30000 | 495000 | ||
K-30000 units---> (18+6+3)*30000 | 810000 | ||
J-70000 units---> (10+4+2.5)*70000 | 0 | 1155000 | |
K-80000 units---> (18+6+3)*80000 | 0 | 2160000 | |
9 | Production cost for sale units (7-8) | 3750000 | 3315000 |
10 | Variable Selling expenses | ||
Product J (80000*1.5), (70000*1.5) | 120000 | 105000 | |
Product K (90000*1.5), (80000*1.5) | 135000 | 120000 | |
11 | Fixed Selling expenses | 800000 | 800000 |
12 | Administration Overheads | 1200000 | 1200000 |
13 | Fixed Production Overhead | 2000000 | 2000000 |
Total (9+10+11+12+13) | 8005000 | 7540000 | |
14 | Actual Profit under Marginal costing | ||
(1-13) | 4595000 | 3610000 |
ii.
Preparation of profit statements under Absorption costing | |||
SI.No | Particulars | Jan - Mar | Apr-Jun |
1 | Sales | ||
Product J (80000*45), (70000*45) | 3600000 | 3150000 | |
Product K (90000*100), (80000*100) | 9000000 | 8000000 | |
12600000 | 11150000 | ||
2 | Direct materials | ||
Product J (110000*10), (110000*10) | 1100000 | 1100000 | |
Product K (120000*18), (130000*18) | 2160000 | 2340000 | |
3 | Direct Labour | ||
Product J (110000*4), (110000*4) | 440000 | 440000 | |
Product K (120000*6), (130000*6) | 720000 | 780000 | |
4 | Variable Overhead cost | ||
Product J (110000*2.5), (110000*2.5) | 275000 | 275000 | |
Product K (120000*3), (130000*3) | 360000 | 390000 | |
5 | Fixed Overheads (WN-2) | ||
Product J (110000*8), (110000*8) | 880000 | 880000 | |
Product K (120000*12), (130000*12) | 1440000 | 1560000 | |
6 | Total (2+3+4+5) | 7375000 | 7765000 |
7 | Opening stock | ||
J-30000 units---> (10+4+2.5+8)*30000 | 0 | 735000 | |
K-30000 units---> (18+6+3+12)*30000 | 0 | 1170000 | |
8 | Total (6+7) | 7375000 | 9670000 |
9 | Closing Stock | ||
J-30000 units---> (10+4+2.5+8)*30000 | 735000 | ||
K-30000 units---> (18+6+3+12)*30000 | 1170000 | ||
J-70000 units---> (10+4+2.5+8)*70000 | 1715000 | ||
K-80000 units---> (18+6+3+12)*80000 | 3120000 | ||
10 | Production cost for sale units (8-9) | 5470000 | 4835000 |
11 | Gross Profit (1-10) | 7130000 | 6315000 |
12 | (UNDER)/ OVER ABSORPTION OF OVERHEADS | 320000 | 440000 |
13 | Variable Selling expenses | ||
Product J (80000*1.5), (70000*1.5) | 120000 | 105000 | |
Product K (90000*1.5), (80000*1.5) | 135000 | 120000 | |
14 | Fixed Selling expenses | 800000 | 800000 |
15 | Administration Overheads | 1200000 | 1200000 |
16 | Actual Profit under Absorption costing |
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& M limited company, an entity that is listed on the Exchange
market, for the year ending December 2019.
CapitalComponent
Contribution [$]
Component
Cost(%)
$2 Ordinary Shares
2 000 000
34
Retained Earnings
800 000
34
$1 Cumulative
Preference Shares
1 400 000
32
Convertible Loan
Notes
800 000
25
Total Financing
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The convertible loan notes were issued two years ago at a face
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& M limited company, an entity that is listed on the Exchange
market, for the year ending December 2019.
CapitalComponent
Contribution [$]
Component
Cost(%)
$2 Ordinary Shares
2 000 000
34
Retained Earnings
800 000
34
$1 Cumulative
Preference Shares
1 400 000
32
Convertible Loan
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800 000
25
Total Financing
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1 600 000 Cost of sales 940 000 800 000 Operating profit 600 000
520 000 Profit before tax 520 000 450 000 Profit after tax 364 000
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The following information has been extracted from the financial
statements of YDI Limited: Extract of Statement of Comprehensive
Income for the year ended 31 December 2019 2018 R R Sales 2 000 000
1 600 000 Cost of sales 940 000 800 000 Operating profit 600 000
520 000 Profit before tax 520 000 450 000 Profit after tax 364 000
315 000 Extract of Statement of Financial Position as at 31
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The following information has been extracted from the financial
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Extract of Statement of Comprehensive Income for the year ended
31 December:
2019
2018
$
$
Sales
2
000 000 1 600 000
Cost of sales
940 000
800 000
Operating profit 600 000
520 000
Profit before tax 520 000
450 000
Profit after tax
364 000
315 000
Extract of Statement of Financial Position as at 31
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16,471,616 Distribution costs 864,531 Administration expenses
1,494,228 Surplus on sale of fixed assets 11,054 Interest
receivable 21,721 Losses due to seizure of imported sugar 351,890
Overdraft interest 139,001 Loan interest (Loan repayable 31 March
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follow it. When answering the questions (filling in the blanks), DO
NOT use dollar signs, USE commas to separate thousands, DO NOT use
parenthesis to denote negative numbers, USE the negative sign in
front of first digit for negative numbers. Round to the nearest
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Earnings before interests and taxes: EBIT in 2020 =
600
Tax rate: T = ...
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statements of a company. Use it to answer the 4 questions that
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parenthesis to denote negative numbers, USE the negative sign in
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Administrative expenses 250
Distribution costs 295
Share capital (all ordinary share of Le 1.00)
270
Share premium 80
Revaluation reserve 20
Dividend 27
Cash at bank and in hand 3
Receivables 233
Interest paid 25
Dividend received 15
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Administrative expenses 250
Distribution costs 295
Share capital (all ordinary share of Le 1.00)
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Share premium 80
Revaluation reserve 20
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Interest paid 25
Dividend received 15
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