kasembe ltd is considering its plans for the year ending 3i december 2014. it makes and sells a single product, which has budgeted costs and selling price as follows: selling price $45 per unit, direct materials $11 per unit, direct labour $8 per unit. production overhead: variable $4000 per unit, fixed $$3000. Selling overhead: variable $5000, fixed $2000. Adminstration overhead: fixed $3000. fixed overhead costs per unit are based on a normal annual activity level of 96000 units. these costs are expected to be incured at a constant rate throughout the year. activity levels during january and february 2014 are expected to be:january sales 7000 units, production 8500 units; february sales 8750 units, production 7750 units. assume that there will be no stock held on 1 january 2014. required; a) prepare profit statements for each of the two months of january and february using; absorption costing and marginal costing. reconcile and explain the reasons for any differences

Question
Asked Apr 1, 2019

kasembe ltd is considering its plans for the year ending 3i december 2014. it makes and sells a single product, which has budgeted costs and selling price as follows: selling price $45 per unit, direct materials $11 per unit, direct labour $8 per unit. production overhead: variable $4000 per unit, fixed $$3000. Selling overhead: variable $5000, fixed $2000. Adminstration overhead: fixed $3000. fixed overhead costs per unit are based on a normal annual activity level of 96000 units. these costs are expected to be incured at a constant rate throughout the year. activity levels during january and february 2014 are expected to be:january sales 7000 units, production 8500 units; february sales 8750 units, production 7750 units. assume that there will be no stock held on 1 january 2014. required; a) prepare profit statements for each of the two months of january and february using; absorption costing and marginal costing. reconcile and explain the reasons for any differences

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Step 1

Absorption costing

 

Absorption costing method is the costing technique that allocates the fixed and variable overheads. It considers both fixed as well as variable manufacturing costs.

 

Marginal costing

 

Marginal costing is a costing technique in which all variable manufacturing costs are considered the product cost or the direct cost. Fixed cost is the period cost under this method.

 

Note: Here, we assume that the production overhead variable cost is $40 per unit, as there is some typo error in the question.

Step 2

In order to prepare the profit statements for two months, we need to calculate the following things:

 

January:

 

Marginal costing:

 

Calculation of sales:

 

Calculation of direct labor:

 

Calculation of direct material:

 

Calculation of variable overhead:

 

Calculation of total variable cost:

 

 

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Step 3

Calculation of closing stock:

Calculation of marginal cost of goods sold:

Calculation of total product...

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