Hermione Ltd. produces magical wands. The budgeted production equals 500 magical wands and the budgeted fixed production overheads equals £282,000. The actual production level was 20% lower than estimated and the actual fixed production overheads equal £300,000. The selling, general and administrative expenses equal £18,250. Hermione Ltd. sells 200 magical wands for a price of £150 per unit. The variable production cost per unit is £56. Required: a) Generate the profit statement using the absorption costing technique. b) Considering your answer in a), which is your advice for Hermione Ltd.? Explain your answer in detail. c) Would your answers in a) and b) change if the amount of magical wands sold equals 400 units? Explain your answer in detail.

Hermione Ltd. produces magical wands. The budgeted production equals 500 magical wands and the budgeted fixed production overheads equals £282,000. The actual production level was 20% lower than estimated and the actual fixed production overheads equal £300,000. The selling, general and administrative expenses equal £18,250. Hermione Ltd. sells 200 magical wands for a price of £150 per unit. The variable production cost per unit is £56. Required: a) Generate the profit statement using the absorption costing technique. b) Considering your answer in a), which is your advice for Hermione Ltd.? Explain your answer in detail. c) Would your answers in a) and b) change if the amount of magical wands sold equals 400 units? Explain your answer in detail.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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