Question #12 At the end of November 2016, Caribbean Productions Ltd had 700 units of product BMR400 in store. For the month of December 2016, the company budgeted to produce 10,000 units of the product at a selling price of $2,500 each. Fixed administration and selling expenses were expected to be $1,500,000 and $1,000,000 respectively. During the month, the company produced 10,500 units of the product. On December 31, 2016, there were 1,100 units of the product on hand. The following cost information relating to the product was made available at the end of December 2016: Cost per unit Details $ Direct material 400 Direct labour 500 Variable production overheads 300 1,200 Fixed production overheads 150 Total 1,350 Required: Explain to management the circumstance that would have to prevail for both methods to produce the same profit figures. Reconcile the profits obtained from both product costing approaches.
Question #12
At the end of November 2016, Caribbean Productions Ltd had 700 units of product BMR400 in store. For the month of December 2016, the company budgeted to produce 10,000 units of the product at a selling price of $2,500 each. Fixed administration and selling expenses were expected to be $1,500,000 and $1,000,000 respectively. During the month, the company produced 10,500 units of the product. On December 31, 2016, there were 1,100 units of the product on hand. The following cost information relating to the product was made available at the end of December 2016:
Cost per unit
|
Details |
$ |
|
Direct material |
400 |
|
Direct labour |
500 |
|
Variable production overheads |
300 |
|
|
1,200 |
|
Fixed production overheads |
150 |
|
Total |
1,350 |
Required:
Explain to management the circumstance that would have to prevail for both methods to produce the same profit figures.
Reconcile the profits obtained from both product costing approaches.
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