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Question 2: Variable costing and absorption costing Details of a company's first two years of operations are shown: Year 1 Sales @ £25 Opening stock in units Units produced Units sold Fixed selling administrative expenses Direct materials Direct labour £1,000,000 0 and £110,000 The company's unit product cost is computed as follows: (£180,000/45,000 units) Unit product cost 45000 40000 Variable manufacturing overhead Fixed manufacturing overhead Year 2 £1,250,000 5000 45000 50000 £110,000 £ 4 7 4 16 Required: a) Prepare a profit and loss account for each year using Absorption costing. b) Using the profit under Absorption costing, calculate what the profit would be each year if the company used Marginal costing. c) Why is Marginal costing which is used by Management accounting incompatible with Financial accounting?

Question 2: Variable costing and absorption costing Details of a company's first two years of operations are shown: Year 1 Sales @ £25 Opening stock in units Units produced Units sold Fixed selling administrative expenses Direct materials Direct labour £1,000,000 0 and £110,000 The company's unit product cost is computed as follows: (£180,000/45,000 units) Unit product cost 45000 40000 Variable manufacturing overhead Fixed manufacturing overhead Year 2 £1,250,000 5000 45000 50000 £110,000 £ 4 7 4 16 Required: a) Prepare a profit and loss account for each year using Absorption costing. b) Using the profit under Absorption costing, calculate what the profit would be each year if the company used Marginal costing. c) Why is Marginal costing which is used by Management accounting incompatible with Financial accounting?

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter2: Basic Managerial Accounting Concepts
Section: Chapter Questions
Problem 39E: Cost Classification Loring Company incurred the following costs last year: Required: 1. Classify...
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Question 2: Variable costing and absorption costing Details of a company's first two years of operations are shown: Year 1 Sales @ £25 Opening stock in units Units produced Units sold Fixed selling administrative expenses Direct materials Direct labour and £1,000,000 0 45000 40000 The company's unit product cost is computed as follows: (£180,000/45,000 units) Unit product cost £110,000 Variable manufacturing overhead Fixed manufacturing overhead Year 2 £1,250,000 5000 45000 50000 £110,000 £ 4 7 1 4 16 Required: a) Prepare a profit and loss account for each year using Absorption costing. b) Using the profit under Absorption costing, calculate what the profit would be each year if the company used Marginal costing. c) Why is Marginal costing which is used by Management accounting incompatible with Financial accounting?
Transcribed Image Text:Question 2: Variable costing and absorption costing Details of a company's first two years of operations are shown: Year 1 Sales @ £25 Opening stock in units Units produced Units sold Fixed selling administrative expenses Direct materials Direct labour and £1,000,000 0 45000 40000 The company's unit product cost is computed as follows: (£180,000/45,000 units) Unit product cost £110,000 Variable manufacturing overhead Fixed manufacturing overhead Year 2 £1,250,000 5000 45000 50000 £110,000 £ 4 7 1 4 16 Required: a) Prepare a profit and loss account for each year using Absorption costing. b) Using the profit under Absorption costing, calculate what the profit would be each year if the company used Marginal costing. c) Why is Marginal costing which is used by Management accounting incompatible with Financial accounting?
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