QUESTION 1 Dee and Co. Limited makes and sells a particular product. At the moment, the company uses absorption costing to measure profits and inventory values. The cost per unit of each item of the product is as follows: GHe 54 Direct material (6 kilograms@GH9per kilo) 40 Direct labour (5 hours@GHe8per hour) 30 Fixed production overhead The fixed production overhead figure has been calculated on the basis of a budgeted normal volume of 32,000 units per annum. The fixed production overhead incurred amount to GH¢960,000 per annum. Costs relating to sales, distribution and administration are: Fixed GHe 420,000 per annum Variable 15% of the sales value There were no units of finished goods inventory at 1st July 2021. The selling price per unit is GH220. The number of units produced and sold for the last two quarters of 2021 are detailed below: Third quarter of 2021 (units) Fourth quarter of 2021 (units) Production 7,000 10,000 Sales 6,000 9,000 The company is contemplating of whether to reject absorption costing and adopt marginal costing as alternative for profit reporting and inventory valuation. Required: a) Prepare the income statements for the last two quarters of 2021 using absorption costing and marginal costing. b) Reconcile profit for the third quarter in (a) above. c) There seems to be arguments for and against absorption costing and marginal costing techniques. Required: State two (2) arguments to contrast absorption costing and marginal costing.
QUESTION 1 Dee and Co. Limited makes and sells a particular product. At the moment, the company uses absorption costing to measure profits and inventory values. The cost per unit of each item of the product is as follows: GHe 54 Direct material (6 kilograms@GH9per kilo) 40 Direct labour (5 hours@GHe8per hour) 30 Fixed production overhead The fixed production overhead figure has been calculated on the basis of a budgeted normal volume of 32,000 units per annum. The fixed production overhead incurred amount to GH¢960,000 per annum. Costs relating to sales, distribution and administration are: Fixed GHe 420,000 per annum Variable 15% of the sales value There were no units of finished goods inventory at 1st July 2021. The selling price per unit is GH220. The number of units produced and sold for the last two quarters of 2021 are detailed below: Third quarter of 2021 (units) Fourth quarter of 2021 (units) Production 7,000 10,000 Sales 6,000 9,000 The company is contemplating of whether to reject absorption costing and adopt marginal costing as alternative for profit reporting and inventory valuation. Required: a) Prepare the income statements for the last two quarters of 2021 using absorption costing and marginal costing. b) Reconcile profit for the third quarter in (a) above. c) There seems to be arguments for and against absorption costing and marginal costing techniques. Required: State two (2) arguments to contrast absorption costing and marginal costing.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:QUESTION 1
Dee and Co. Limited makes and sells a particular product. At the moment, the company uses
absorption costing to measure profits and inventory values. The cost per unit of each item of the
product is as follows:
GHe
54
Direct material (6 kilograms@GHé9per kilo)
40
Direct labour (5 hours@GHe8per hour)
30
Fixed production overhead
The fixed production overhead figure has been calculated on the basis of a budgeted normal
volume of 32,000 units per annum. The fixed production overhead incurred amount to
GHE960,000 per annum. Costs relating to sales, distribution and administration are:
Fixed
GHe 420,000 per annum
Variable
15% of the sales value
There were no units of finished goods inventory at 1st July 2021. The selling price per unit is
GHE220. The number of units produced and sold for the last two quarters of 2021 are detailed
below:
Third quarter of 2021 (units)
Fourth quarter of 2021 (units)
Production
7,000
10,000
Sales
6,000
9,000
The company is contemplating of whether to reject absorption costing and adopt marginal
costing as alternative for profit reporting and inventory valuation.
Required:
a) Prepare the income statements for the last two quarters of 2021 using absorption costing and
marginal costing.
b) Reconcile profit for the third quarter in (a) above.
c) There seems to be arguments for and against absorption costing and marginal costing
techniques.
Required: State two (2) arguments to contrast absorption costing and marginal costing.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 7 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education