Oathall Ltd, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available: £/unit Direct materials 4 Direct labour 15 19 Selling price 50 Fixed production overheads are budgeted to be £300,000 per month and are absorbed on an activity level of 100,000 units per month. For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of £150,000 per month will need to be included in the budget as will the variable selling costs of £2 per unit. There are no opening stocks. Required: Prepare the budgeted profit and loss account for a month for Oathall Ltd using absorption costing. Clearly show the valuation of any stock figures. Prepare the budgeted profit and loss account for a month for Oathall Ltd using marginal costing. Clearly show the valuation of any stock figures.
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.
Oathall Ltd, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its
The following information is available:
£/unit
Direct materials 4
Direct labour 15
19
Selling price 50
Fixed production
For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of £150,000 per month will need to be included in the budget as will the variable selling costs of £2 per unit. There are no opening stocks.
Required:
- Prepare the budgeted
profit and loss account for a month for Oathall Ltd using absorption costing. Clearly show the valuation of any stock figures. - Prepare the budgeted profit and loss account for a month for Oathall Ltd using marginal costing. Clearly show the valuation of any stock figures.
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