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QUESTION 1 Dee and Co. Limited makes and sells a particular product. At the moment, the company uses absorption costing to measure profits and inventory values. The cost per unit of each item of the product is as follows: GHe 54 Direct material (6 kilograms@GH9per kilo) 40 Direct labour (5 hours@GHe8per hour) 30 Fixed production overhead The fixed production overhead figure has been calculated on the basis of a budgeted normal volume of 32,000 units per annum. The fixed production overhead incurred amount to GH¢960,000 per annum. Costs relating to sales, distribution and administration are: Fixed GHe 420,000 per annum Variable 15% of the sales value There were no units of finished goods inventory at 1st July 2021. The selling price per unit is GH220. The number of units produced and sold for the last two quarters of 2021 are detailed below: Third quarter of 2021 (units) Fourth quarter of 2021 (units) Production 7,000 10,000 Sales 6,000 9,000 The company is contemplating of whether to reject absorption costing and adopt marginal costing as alternative for profit reporting and inventory valuation. Required: a) Prepare the income statements for the last two quarters of 2021 using absorption costing and marginal costing. b) Reconcile profit for the third quarter in (a) above. c) There seems to be arguments for and against absorption costing and marginal costing techniques. Required: State two (2) arguments to contrast absorption costing and marginal costing.

QUESTION 1 Dee and Co. Limited makes and sells a particular product. At the moment, the company uses absorption costing to measure profits and inventory values. The cost per unit of each item of the product is as follows: GHe 54 Direct material (6 kilograms@GH9per kilo) 40 Direct labour (5 hours@GHe8per hour) 30 Fixed production overhead The fixed production overhead figure has been calculated on the basis of a budgeted normal volume of 32,000 units per annum. The fixed production overhead incurred amount to GH¢960,000 per annum. Costs relating to sales, distribution and administration are: Fixed GHe 420,000 per annum Variable 15% of the sales value There were no units of finished goods inventory at 1st July 2021. The selling price per unit is GH220. The number of units produced and sold for the last two quarters of 2021 are detailed below: Third quarter of 2021 (units) Fourth quarter of 2021 (units) Production 7,000 10,000 Sales 6,000 9,000 The company is contemplating of whether to reject absorption costing and adopt marginal costing as alternative for profit reporting and inventory valuation. Required: a) Prepare the income statements for the last two quarters of 2021 using absorption costing and marginal costing. b) Reconcile profit for the third quarter in (a) above. c) There seems to be arguments for and against absorption costing and marginal costing techniques. Required: State two (2) arguments to contrast absorption costing and marginal costing.

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 28P: The following information pertains to Vladamir, Inc., for last year: There are no work-in-process...
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QUESTION 1 Dee and Co. Limited makes and sells a particular product. At the moment, the company uses absorption costing to measure profits and inventory values. The cost per unit of each item of the product is as follows: GHe 54 Direct material (6 kilograms@GHé9per kilo) 40 Direct labour (5 hours@GHe8per hour) 30 Fixed production overhead The fixed production overhead figure has been calculated on the basis of a budgeted normal volume of 32,000 units per annum. The fixed production overhead incurred amount to GHE960,000 per annum. Costs relating to sales, distribution and administration are: Fixed GHe 420,000 per annum Variable 15% of the sales value There were no units of finished goods inventory at 1st July 2021. The selling price per unit is GHE220. The number of units produced and sold for the last two quarters of 2021 are detailed below: Third quarter of 2021 (units) Fourth quarter of 2021 (units) Production 7,000 10,000 Sales 6,000 9,000 The company is contemplating of whether to reject absorption costing and adopt marginal costing as alternative for profit reporting and inventory valuation. Required: a) Prepare the income statements for the last two quarters of 2021 using absorption costing and marginal costing. b) Reconcile profit for the third quarter in (a) above. c) There seems to be arguments for and against absorption costing and marginal costing techniques. Required: State two (2) arguments to contrast absorption costing and marginal costing.
Transcribed Image Text:QUESTION 1 Dee and Co. Limited makes and sells a particular product. At the moment, the company uses absorption costing to measure profits and inventory values. The cost per unit of each item of the product is as follows: GHe 54 Direct material (6 kilograms@GHé9per kilo) 40 Direct labour (5 hours@GHe8per hour) 30 Fixed production overhead The fixed production overhead figure has been calculated on the basis of a budgeted normal volume of 32,000 units per annum. The fixed production overhead incurred amount to GHE960,000 per annum. Costs relating to sales, distribution and administration are: Fixed GHe 420,000 per annum Variable 15% of the sales value There were no units of finished goods inventory at 1st July 2021. The selling price per unit is GHE220. The number of units produced and sold for the last two quarters of 2021 are detailed below: Third quarter of 2021 (units) Fourth quarter of 2021 (units) Production 7,000 10,000 Sales 6,000 9,000 The company is contemplating of whether to reject absorption costing and adopt marginal costing as alternative for profit reporting and inventory valuation. Required: a) Prepare the income statements for the last two quarters of 2021 using absorption costing and marginal costing. b) Reconcile profit for the third quarter in (a) above. c) There seems to be arguments for and against absorption costing and marginal costing techniques. Required: State two (2) arguments to contrast absorption costing and marginal costing.
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