Hull sandwich Ltd makes sandwiches and the company produces this sandwich in batches of 30 packs. The production and sales data for the last two years are given below: Year ended 31st October 2019 Year ended 31st October 2018 Production 32,500 batches 31,000 batches Sales 32,000 batches 30,000 batches There was no opening inventory on 1st November 2017. The company ensured variable cost is 30% of sales in both 2018 and 2019, and the variable costs of making one batch of sandwichesbefore 31st October 2018 were as follows: Categories Cost per batch (£) Direct materials 60 Direct labour 6 Machine hour 15 Variable manufacturing overhead 4 Variable marketing and administrative overhead 7 The fixed manufacturing and marketing and administrative overheads were £600,000 and £500,000 respectively in 2018. From 1st November 2018, the company has made the following changes to its cost structure: 1. The direct labour, variable manufacturing overhead and variable marketing and administrative overhead costs are to increase by 2%. Besides, a new supply chain reduces the cost of direct materials by 15%. 2. Full-time staff will be paid 3% higher based on the amount in 2018. One-third of the fixed manufacturing cost and one-fifth of the fixed marketing and administrative cost in 2018 represented the salary of full-time staff. No other changes have been made of full-time staff salary. 3. The company has rented a new van for £12,000 per year. 4. The company has recruited a new production manager to supervise the production process. The firm pays salary of £15,000 per year. Required: a) Calculate the sales price of the sandwich per batch and per pack in 2019. b) Prepare the income statement for Hull Sandwich Ltd for the year ended on 31st October 2019 using the absorption costing approach. c) Evaluate the differences between marginal costing and absorption costing approach.

Hull sandwich Ltd makes sandwiches and the company produces this sandwich in batches of 30 packs. The production and sales data for the last two years are given below: Year ended 31st October 2019 Year ended 31st October 2018 Production 32,500 batches 31,000 batches Sales 32,000 batches 30,000 batches There was no opening inventory on 1st November 2017. The company ensured variable cost is 30% of sales in both 2018 and 2019, and the variable costs of making one batch of sandwichesbefore 31st October 2018 were as follows: Categories Cost per batch (£) Direct materials 60 Direct labour 6 Machine hour 15 Variable manufacturing overhead 4 Variable marketing and administrative overhead 7 The fixed manufacturing and marketing and administrative overheads were £600,000 and £500,000 respectively in 2018. From 1st November 2018, the company has made the following changes to its cost structure: 1. The direct labour, variable manufacturing overhead and variable marketing and administrative overhead costs are to increase by 2%. Besides, a new supply chain reduces the cost of direct materials by 15%. 2. Full-time staff will be paid 3% higher based on the amount in 2018. One-third of the fixed manufacturing cost and one-fifth of the fixed marketing and administrative cost in 2018 represented the salary of full-time staff. No other changes have been made of full-time staff salary. 3. The company has rented a new van for £12,000 per year. 4. The company has recruited a new production manager to supervise the production process. The firm pays salary of £15,000 per year. Required: a) Calculate the sales price of the sandwich per batch and per pack in 2019. b) Prepare the income statement for Hull Sandwich Ltd for the year ended on 31st October 2019 using the absorption costing approach. c) Evaluate the differences between marginal costing and absorption costing approach.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Hull sandwich Ltd makes sandwiches and the company produces this sandwich in batches of 30 packs. The production and sales data for the last two years are given below:

	Year ended 31st October 2019	Year ended 31st October 2018
Production	32,500 batches	31,000 batches
Sales	32,000 batches	30,000 batches

There was no opening inventory on 1st November 2017. The company ensured variable cost is 30% of sales in both 2018 and 2019, and the variable costs of making one batch of sandwichesbefore 31st October 2018 were as follows:

Categories	Cost per batch (£)
Direct materials	60
Direct labour	6
Machine hour	15
Variable manufacturing overhead	4
Variable marketing and administrative overhead	7

The fixed manufacturing and marketing and administrative overheads were £600,000 and £500,000 respectively in 2018.

From 1st November 2018, the company has made the following changes to its cost structure:

1. The direct labour, variable manufacturing overhead and variable marketing and administrative overhead costs are to increase by 2%. Besides, a new supply chain reduces the cost of direct materials by 15%.

2. Full-time staff will be paid 3% higher based on the amount in 2018. One-third of the fixed manufacturing cost and one-fifth of the fixed marketing and administrative cost in 2018 represented the salary of full-time staff. No other changes have been made of full-time staff salary.

3. The company has rented a new van for £12,000 per year.

4. The company has recruited a new production manager to supervise the production process. The firm pays salary of £15,000 per year.

Required:

a) Calculate the sales price of the sandwich per batch and per pack in 2019.

b) Prepare the income statement for Hull Sandwich Ltd for the year ended on 31st October 2019 using the absorption costing approach.

c) Evaluate the differences between marginal costing and absorption costing approach.

d) In addition to absorption and marginal costing, there are some other costing methods, like Activity Based Costing (ABC). The firm can use ABC to allocate the overhead cost based on business activities. Briefly discuss the importance of choosing an appropriate cost driver for allocating overhead cost.

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