Kiwenkira & Son Ltd makes and sells a single product marketed under the brand name Kiwetonic for the West African sub-region and has a total production capacity of 30,000 units per month. The budget for January 2020 contained the following information:
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Kiwenkira & Son Ltd makes and sells a single product marketed under the brand name Kiwetonic
for the West African sub-region and has a total production capacity of 30,000 units per month. The budget for January 2020 contained the following information:
|
Normal capacity (Units) |
27,000 |
|
Variable costs per unit: |
|
|
Production (GH¢) |
110 |
|
Selling and distribution (GH¢) |
25 |
|
Fixed |
|
|
Production (GH¢) |
756,000 |
|
Selling and administration (GH¢) |
504,000 |
The actual operating data for January 2020 is as follows:
|
Production |
24,000 units |
|
Sales at GH¢250 per unit |
22,000 units |
|
Opening inventory of finished goods |
2,000 units |
During the month of January 2020, the variable factory overheads exceeded the budget by GH¢120,000.
Required:
a) Prepare profit statement for the month of January using:
Marginal costing: and
Absorption costing techniques
b) Reconcile the difference in profits (if any), under the two techniques
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