Answered: r of a company that manufactures a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

The Cost Officer of a company that manufactures a product came up with the following information: Direct materials: 30% of Sales Direct wages (Variable): 20% of Sales Production overhead (Fixed): Same as direct wages Production overhead (Variable): 25% of direct wages Administration overhead (Fixed): 10 % of Sales Selling overheads (Note 1): Same as Production overhead (Variable) Note 1: The behaviour of selling overhead in relation to changes in sales volume (units) is as follows: Normal activity: M65 000 90% of normal activity: M63 050 110% of normal activity: M66 950. The company uses an absorption costing system to value inventory. The predetermined absorption rates are based on normal level of activity. During November and December, 2021 of the financial year, the production and sales expressed as percentages of normal activity, were as follows: November December Sales 80% 100% Production 100% 80% The actual selling price and variable costs per unit were as budgeted. It is the company decision to maintain profit at 10% of sales, which is M130 000; and selling price at M130 per unit. The fixed costs incurred in November and December, 2021 were as budgeted, except for production overheads, which exceeded budget by 10%. Required: (a). Calculate the unit product costs under absorption costing system: (b). Calculate the over-/under –absorbed fixed production overhead for each month. (c). Prepare profit and loss statements for each month in a tabular form on the basis of: (i). Absorption costing system (ii) Marginal costing system (d). Reconcile the profit or loss of the two costing systems as calculated in part “c”.

Expert Solution