Question

Question 2

Information Relates for the Question that Follows Below:

Blessed Pearl Limited produces certificate seals for which the budget per unit is as follows:

	K
Materials	2,000
Labour	3,000
Variable Production overhead	3,000
Fixed Production overhead	4,000
Variable selling cost	1,000
Fixed Selling expenses	2,000
Profit	5,000
Sales Price	20,000

Both types of fixed overheads were based on a budget of 10,000 certificate seals a year. In the first year of production, the only difference from the budget was that Blessed Pearl Limited produced 11,000 certificate seals and sold 9,000.

Required

Prepare:

1. Profit statement made under absorption costing?                                               
2. Profit statement made under Marginal costing?                                                    
3. A statement reconciling the profit figures in (a) and (b                                          

                                                                                                                

Answer 1

a) Profit statement under absorption costing:

Amount (in '000)

Sales: (9,000 units @ 20,000 per unit) 180,000

Cost of goods sold

Materials (9,000 units @ 2,000 per unit) 18,000

Labour (9,000 units @ 3,000 per unit). 27,000

Variable production overhead (9,000 @ 3,000). 27,000

Fixed production overhead (9,000 @ 4,000) 36,000

Variable selling cost (9,000 @ 1,000) 9,000

Fixed selling cost (9,000 @ 2,000) 18,000

Profit (9,000 @ 5,000). 45,000

b) Profit statement under marginal costing:

Sales (as above) 180,000

Less: variable cost

Material. 18,000

Labour. 27,000

Variable production overhead 27,000

Variable selling expenses. 9,000

Contribution (sales - variable cost). 99,000

Less: fixed cost

Fixed production overhead (10,000@4,000) 40,000

Fixed selling cost (10,000@2,000). 20,000

Profit 39,000

c) Reconciliation between a and b

Profit as per absorption costing 45,000

Less: under absorption of fixed production overhead 4,000

Less: under absorption of fixed selling expenses. 2,000

Profit as per marginal costing. 39,000