- 12 Marks
Question
a) Resol Ltd commenced trading on 1 April 2011 making the product Resol. The standard cost sheet for Resol is as follows:
The fixed production overhead figure has been calculated on the basis of a budgeted normal output of 24,000 units per annum. Fixed Sales and Administration costs are estimated at GH¢24,000 per annum. You may assume that all budgeted fixed expenses are incurred evenly over the year.
The sales price is GH¢35.00 and the actual number of units produced and sold was as follows:
April | May | |
---|---|---|
Production – units | 2,000 | 2,500 |
Sales – units | 1,500 | 3,000 |
Required:
Prepare a profit statement for each of the months April and May using:
- Standard costing
- Absorption costing
Answer
(i) Standard Costing Profit Statement
April | May | |
---|---|---|
Sales | 52,500 | 105,000 |
Cost of Sales | 7500 | |
Opening Stock | 30,000 | 37,500 |
Variable production cost | (7,500) | |
Closing Stock | 22,500 | 45,000 |
Contribution | 30,000 | 60,000 |
Fixed production Overheads | (10,000) | (10,000) |
Sales & Administration Overheads | (2,000) | (12,000) |
Profit for period | 18,000 | 48,000 |
(ii) Absorption Costing Profit Statement
April | May | |
---|---|---|
Sales | 52,500 | 105,000 |
Cost of Sales | ||
Opening Stock | 0 | 10,000 |
Production cost (total) | 40,000 | 50,000 |
Closing Stock | (10,000) | 0 |
Gross Profit | 22,500 | 45,000 |
Sales & Administration Overheads | (2,000) | (2,000) |
Over-absorbed fixed production overhead | 0 | (2,500) |
Profit for period | 20,500 | 45,500 |
Workings:
Calculation of Unit Costs
Cost Component | GH¢ |
---|---|
Direct Materials | 8.00 |
Direct Labour | 5.00 |
Variable Overhead | 2.00 |
Variable Production Cost | 15.00 |
Fixed Overhead | 5.00 |
Total Production Cost | 20.00 |
Closing Stock Calculations
Month | Units | Standard Costing | Absorption Costing |
---|---|---|---|
April | 500 | GH¢7,500 | GH¢10,000 |
Fixed Production Overhead
Calculation | GH¢ |
---|---|
Budgeted production (24,000 units) | 120,000 |
Fixed overhead per month | 10,000 |
Over absorption of fixed production overhead | 2,500 |
Fixed Sales and Administration Cost
Calculation | GH¢ |
---|---|
Total annual cost | 24,000 |
Monthly cost | 2,000 |
- Tags: Fixed Overheads, Profit Statement, Standard Costing, Variable Costs, Variance Analysis
- Level: Level 2
- Topic: Standard Costing and Variance Analysis
- Series: MAY 2018
- Uploader: Joseph