Dan Wood Ltd commenced business on 1st January 2020 making one product only, which sells for K160 per item. The production and sales data for each of the first three months of 2020 was as follows: January February March Sales in units 2,400 2,500 3,800 Production in units 2,700 2,400 4,000 Actual information for each month was as follows: Direct materials 3 kilograms at K5 per kilogram Direct labour 4 hours at K10 per hour Variable production overheads 150% of direct labour Sales commission 10% of sales value Fixed production overheads K10,000 Fixed selling overheads K35,000 There was no opening inventory at the start of January. Fixed production overheads are budgeted at K120,000 per annum and are absorbed into products based on a budgeted normal output of 30,000 units per annum Required: (a) Prepare a profit statement for each of the three months using absorption costing principles (b) Prepare a profit statement for each of the three months using marginal costing principles. (c) Present a reconciliation of the profit or loss figures given in your answer to (a) and (b) together with an explanation of the reason for the difference.
Dan Wood Ltd commenced business on 1st January 2020 making one product only, which sells for K160 per item. The production and sales data for each of the first three months of 2020 was as follows:
January February March
Sales in units 2,400 2,500 3,800
Production in units 2,700 2,400 4,000
Actual information for each month was as follows:
Direct materials 3 kilograms at K5 per kilogram
Direct labour 4 hours at K10 per hour
Variable production overheads 150% of direct labour
Sales commission 10% of sales value
Fixed production overheads K10,000
Fixed selling overheads K35,000
There was no opening inventory at the start of January. Fixed production overheads are budgeted at K120,000 per annum and are absorbed into products based on a budgeted normal output of 30,000 units per annum
Required:
(a) Prepare a profit statement for each of the three months using absorption costing principles
(b) Prepare a profit statement for each of the three months using marginal costing principles.
(c) Present a reconciliation of the profit or loss figures given in your answer to (a) and (b) together with an explanation of the reason for the difference.
It should be written in word format. All questions must be answered. Please
Step by step
Solved in 4 steps with 12 images
