A company manufactures one product and has calculated its cost on a quarterly production budget of 10 000 units. The selling price is K5 per unit. Sales in the four successive quarters of last year were: Quarter 1 10 000 Quarter 2 9 000 Quarter 3 7 000 Quarter 4 5 500 The level of inventory at the beginning of the year was 1 000 units and the company maintained its inventory of finished products at the same level at the end of each of the four quarters.
A company manufactures one product and has calculated its cost on a quarterly production budget of 10 000 units. The selling price is K5 per unit. Sales in the four successive quarters of last year were: Quarter 1 10 000 Quarter 2 9 000 Quarter 3 7 000 Quarter 4 5 500 The level of inventory at the beginning of the year was 1 000 units and the company maintained its inventory of finished products at the same level at the end of each of the four quarters.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:QUESTION Two
A company manufactures one product and has calculated its cost on a quarterly production budget
of 10 000 units. The selling price is K5 per unit.
Sales in the four successive quarters of last year were:
Quarter 1
10 000
Quarter 2
9 000
Quarter 3
7 000
Quarter 4
5 500
The level of inventory at the beginning of the year was 1 000 units and the company maintained its
inventory of finished products at the same level at the end of each of the four quarters.
Based on its quarterly production budget, the cost per unit was:
Prime cost
КЗ.50
Production overhead (variable and fixed)
K 0.75
Selling and administration overhead
К О.30
Total
K 4.55
Fixed production overhead, which has been taken into account in calculating the above figures, was
K5 000 per quarter. Selling and administration overhead was treated as fixed, and was charged
against sales in the period in which it was incurred.
Required: using a tabular statement, calculate the net profit of the four quarters
a). under absorption costing
b). under marginal costing.
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