Basic standard cost data of Zahoor & Co. is as under: Opening Finished goods, October, 2007 2,500 units Sales October, 2007 47,500 units Standard variable costs per unit: Rupee(s) Material and labour 8.00 Factory overhead 2.00 Distribution expenses 1.00 Selling price per unit Rs.20 Fixed cost for October, 2007: Manufacturing expenses (Rs.4/- per unit on normal capacity) Rs.200,000 Distribution expenses 75,000 Administration expenses 50,000 Others 25,000 Required: Calculate following throught absorption costing Normal capacity Production units Direct Material Direct Labour Variable Overhead Fixed overhead applied Total manufacturing Cost Closing Finished Goods Opening Finished Goods Under or over applied Gross profit Net Profit
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Basic
Opening Finished goods, October, 2007 2,500 units
Sales October, 2007 47,500 units
Standard variable costs per unit: Rupee(s)
Material and labour 8.00
Factory
Distribution expenses 1.00
Selling price per unit Rs.20
Fixed cost for October, 2007:
Manufacturing expenses (Rs.4/- per unit on normal capacity) Rs.200,000
Distribution expenses 75,000
Administration expenses 50,000
Others 25,000
Required:
Calculate following throught absorption costing
- Normal capacity
- Production units
- Direct Material
- Direct Labour
- Variable Overhead
- Fixed overhead applied
- Total
manufacturing Cost - Closing Finished Goods
- Opening Finished Goods
- Under or over applied
- Gross profit
- Net Profit
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