Fofo Ltd commenced business on April 1, making one product only. The standard cost of which is as follows: GHS Direct labour 5 Direct material 8 Variable production overhead 2 Fixed production overhead 5 Standard production cost 20 The fixed production overhead figure has been calculated on the basis of a budgeted normal output units per annum of 36,000 units per annum. You are to assume that there were no expenditure or efficiency variances and that all the budgeted fixed expenses are incurred over the year. March and April are to be taken as equal period months. Selling, administration and distribution expenses are: Fixed GHS120,000 per annum Variable 15% of selling price The selling piece per unit is GHS35.00, and the number of units produced and sold were as follows: March April Production 2000 3200 Sales 1500 3000 You are required to: (a) Prepare profits statement for each of the months of March and April using (i) Marginal costing (ii) Absorption costing (b) Present a reconciliation of the profit or loss figures given in our answers to (i) and (ii) accompanied by a brief explanation Comment briefly on which costing principle (i.e. marginal and absorption costing) should be used for what purposes and why referring to any statutory or other mandatory constraints
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Fofo Ltd commenced business on April 1, making one product only. The
GHS
Direct labour 5
Direct material 8
Variable production
Fixed production overhead 5
Standard production cost 20
The fixed production overhead figure has been calculated on the basis of a budgeted normal output units per annum of 36,000 units per annum.
You are to assume that there were no expenditure or efficiency variances and that all the budgeted fixed expenses are incurred over the year. March and April are to be taken as equal period months.
Selling, administration and distribution expenses are:
Fixed GHS120,000 per annum
Variable 15% of selling price
The selling piece per unit is GHS35.00, and the number of units produced and sold were as follows:
March April
Production 2000 3200
Sales 1500 3000
You are required to:
(a) Prepare profits statement for each of the months of March and April using
(i) Marginal costing
(ii) Absorption costing
(b) Present a reconciliation of the profit or loss figures given in our answers to (i) and (ii) accompanied by a brief explanation
Comment briefly on which costing principle (i.e. marginal and absorption costing) should be used for what purposes and why referring to any statutory or other mandatory constraints
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