QUESTION TWO The Shatontola Co. Ltd is a single-product manufacturing company, which uses a marginal costing system for internal management purposes. The year-end external reports are converted to absorption costs. Variances are charged to the cost of goods sold. The following data refers to the years ended 31 December 2020 and 2021: 2020 Sales price per unit Standard marginal cost per unit: Direct materials Direct Labour Marginal factory overheads Marginal selling and administrative expenses Fixed factory overheads K 80 21 19 00 8 2 170,000 Units 2021 K 90 23 22 10 3 180,000 Units 2,000 Opening inventory 1,500 Closing inventory 2,000 Sales 20,000 The normal volume used for the purpose of absorption costing is 28,000s units in both years. REQUIRED: (a) Prepare profit and loss accounts for the year-ended 31 December 2021 on a marginal costing and on an absorption costing basis. (b) Discuss any differences which you may find between these two profit and loss acconts. (c) State what advantages and disadvantages attach to the marginal costing approach for internal management purposes. 1,500 25,000
QUESTION TWO The Shatontola Co. Ltd is a single-product manufacturing company, which uses a marginal costing system for internal management purposes. The year-end external reports are converted to absorption costs. Variances are charged to the cost of goods sold. The following data refers to the years ended 31 December 2020 and 2021: 2020 Sales price per unit Standard marginal cost per unit: Direct materials Direct Labour Marginal factory overheads Marginal selling and administrative expenses Fixed factory overheads K 80 21 19 00 8 2 170,000 Units 2021 K 90 23 22 10 3 180,000 Units 2,000 Opening inventory 1,500 Closing inventory 2,000 Sales 20,000 The normal volume used for the purpose of absorption costing is 28,000s units in both years. REQUIRED: (a) Prepare profit and loss accounts for the year-ended 31 December 2021 on a marginal costing and on an absorption costing basis. (b) Discuss any differences which you may find between these two profit and loss acconts. (c) State what advantages and disadvantages attach to the marginal costing approach for internal management purposes. 1,500 25,000
Accounting (Text Only)
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Chapter21: Cost Behavior And Cost-volume-profit Analysis
Section: Chapter Questions
Problem 21.28EX: Appendix Absorption costing income statement On June 30, the end of the first month of operations,...
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:QUESTION TWo
The Shatontola Co. Ltd is a single-product manufacturing company, which uses a marginal costing
system for internal management purposes. The year-end external reports are converted to absorption
costs. Variances are charged to the cost of goods sold.
The following data refers to the years ended 31 December 2020 and 2021:
2020
Sales price per unit
Standard marginal cost per unit:
Direct materials
Direct Labour
Marginal factory overheads
Marginal selling and administrative expenses
Fixed factory overheads
K
80
21
19
8
2
2021
K
90
23
22
10
3
180,000
Units
170,000
Units
Opening inventory
1,500
Closing inventory
2,000
Sales
20,000
The normal volume used for the purpose of absorption costing is 28,000s units in both years.
REQUIRED:
(a) Prepare profit and loss accounts for the year-ended 31 December 2021 on a marginal costing
and on an absorption costing basis.
(b) Discuss any differences which you may find between these two profit and loss acconts.
(c) State what advantages and disadvantages attach to the marginal costing approach for internal
management purposes.
2,000
1,500
25,000
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