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Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available:

Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available:

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 20E: Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc.,...
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Questions 1. Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available: GH¢ /unit Direct materials 4 Direct labour 15 - 19 Selling price 50 -- Fixed production overheads are budgeted to be GH¢ 300,000 per month and are absorbed on an activity level of 100,000 units per month. For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of GH¢ 150,000 per month will need to be included in the budget as will the variable selling costs of GH¢ 2 per unit. There are no opening stocks. Required: (a) Prepare the budgeted profit and loss account for a month for OathalI Limited using absorption costing. Clearly show the valuation of any stock figures. (b) Prepare the budgeted profit and loss account for a month for OathalI Limited using marginal costing. Clearly show the valuation of any stock figures.
Transcribed Image Text:Questions 1. Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available: GH¢ /unit Direct materials 4 Direct labour 15 - 19 Selling price 50 -- Fixed production overheads are budgeted to be GH¢ 300,000 per month and are absorbed on an activity level of 100,000 units per month. For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of GH¢ 150,000 per month will need to be included in the budget as will the variable selling costs of GH¢ 2 per unit. There are no opening stocks. Required: (a) Prepare the budgeted profit and loss account for a month for OathalI Limited using absorption costing. Clearly show the valuation of any stock figures. (b) Prepare the budgeted profit and loss account for a month for OathalI Limited using marginal costing. Clearly show the valuation of any stock figures.
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