Question 6 Mowbray Ltd makes and sells one product, the standard costs of which are as follows: Direct materials (3 kg at £2.50/kg) Direct labour (7¹/2 minutes at £18.00/hr) Fixed overheads Selling price Standard profit margin The monthly production and sales are planned to be 1,200 units. The actual results for May were as follows: Sales revenue Direct materials Direct labour Fixed overheads Operating profit £ 18,000 (7,400) (2,300) (4,100) 4,200 £ (7.50) (2.25) (3.60) (13.35) 20.00 6.65 (2,800 kg) (127.5 hr) There were no inventories at the start or end of May. As a result of poor sales demand during May, the business reduced the price of all sales by 10 per cent. Required: Calculate the budgeted profit for May and reconcile it to the actual profit through variances, going into as much detail as is possible from the information available.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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