Details of a company's first two years of operations are shown: Year 1Year 2 Sales @ £30£1,200,000£1,500,000Opening stock in units05000Units produced4500045000Units sold 40000 50000 Fixed selling and administrative expenses£110,000£110,000 The company's unit product cost is computed as follows: £Direct materials4Direct labour7Variable manufacturing overhead1Fixed manufacturing overhead (£180,000/45,000 units)4Unit product cost16 Required:a) Prepare a profit and loss account for each year using Absorption costing. b) Prepare a profit and loss account for each year using marginal costing. c) Explain the difference in profit between the two costing methods.

Given: Year 1 Year 2 Sales @ £30 £1,200,000 £1,500,000 Opening stock in units…

Answered: a) Prepare a profit and loss account…

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 18MCQ: 2-18 Use the following information for Multiple- Choice Questions 2-13 through 2-18: Last year,...

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Details of a company's first two years of operations are shown:

	Year 1	Year 2

Sales @ £30	£1,200,000	£1,500,000
Opening stock in units	0	5000
Units produced	45000	45000
Units sold	40000	50000

Fixed selling and administrative expenses	£110,000	£110,000

The company's unit product cost is computed as follows:

	£
Direct materials	4
Direct labour	7
Variable manufacturing overhead	1
Fixed manufacturing overhead (£180,000/45,000 units)	4
Unit product cost	16

Required:

a) Prepare a profit and loss account for each year using Absorption costing.

b) Prepare a profit and loss account for each year using marginal costing.

c) Explain the difference in profit between the two costing methods.

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