Yentie Obiaa’ Plastics Plc which manufactures one product has calculated its cost for three quarters on a production budget of 32,000 units. The selling price is GH¢8 per unit. Based on the production budget, profit statement per unit is as follows: GH¢ GH¢ Sales 8 Direct material 1.50 Direct wage 1.70 Production overheads 1.25 Selling and distribution overheads 0.90 Administrative overhead 0.65 Total Cost 6 Profit 2 Actual production and sales over periods 1, 2 and 3 were: Period 1 Period 2 Period 3 Production 32,000 29,000 33,000 Sales 30,000 33,000 32,000 Additional information Fixed production overheads, which have been taken into account in calculating the above figures, was GH¢32,000 per annum. This was based on a normal volume of production of 32,000 units Direct expenses per unit is 40% of the sum of direct material cost and direct labour cost per unit Selling and distribution overheads as well as administrative overheads should be treated as period cost. The level of stock at the beginning of Period 1 is 3,000 units and the company does not intend to maintain stock of finished products at the same level at the end of each period. Required: Produce a summary budgeted profit and loss accounts for the three periods Using absorption costing principles Using marginal costing principles Why is the Marginal Profit different from the Absorption Profit?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
QUESTION
‘Yentie Obiaa’ Plastics Plc which manufactures one product has calculated its cost for three quarters on a production budget of 32,000 units. The selling price is GH¢8 per unit.
Based on the production budget, profit statement per unit is as follows:
GH¢ GH¢
Sales 8
Direct material 1.50
Direct wage 1.70
Production
Selling and distribution overheads 0.90
Administrative overhead 0.65
Total Cost 6
Profit 2
Actual production and sales over periods 1, 2 and 3 were:
Period 1 Period 2 Period 3
Production 32,000 29,000 33,000
Sales 30,000 33,000 32,000
Additional information
- Fixed production overheads, which have been taken into account in calculating the above figures, was GH¢32,000 per annum. This was based on a normal volume of production of 32,000 units
- Direct expenses per unit is 40% of the sum of direct material cost and direct labour cost per unit
- Selling and distribution overheads as well as administrative overheads should be treated as period cost.
- The level of stock at the beginning of Period 1 is 3,000 units and the company does not intend to maintain stock of finished products at the same level at the end of each period.
Required:
Produce a summary budgeted
- Using absorption costing principles
- Using marginal costing principles
- Why is the Marginal Profit different from the Absorption Profit?
- Prepare a profit
reconciliation statement
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