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- 20 Marks
Question
Additional information:
Fixed production overheads are budgeted to be GH¢40,000 per month for a budgeted monthly
production of 20,000 units. Production overheads are absorbed on a unit of production basis.
Required:
a) Using marginal costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)
b) Using absorption costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)
Answer
Workings (W):
W1. Computation of product cost per unit
| Marginal Costing | Absorption Costing | |
|---|---|---|
| Direct material | GH¢14 | GH¢14 |
| Direct labour | GH¢4 | GH¢4 |
| Variable overheads | GH¢2 | GH¢2 |
| Fixed overheads (W2) | – | GH¢2 |
| Total cost per unit | GH¢20 | GH¢22 |
W3. Over/ (Under) Absorption
| Month | July | August | September |
|---|---|---|---|
| GH¢’000 | GH¢’000 | GH¢’000 | |
| Overheads absorbed | 30,000 | 32,000 | 24,000 |
| Overheads incurred | 40,000 | 40,000 | 40,000 |
| Over/(under) absorption | (10,000) | (8,000) | (16,000) |
| (All marks evenly spread for 10 marks using ticks) |
- Tags: Absorption Costing, Marginal Costing, Profit or Loss Statement
- Level: Level 1
- Topic: Marginal Costing and Absorption Costing
- Series: MAY 2020
- Uploader: Joseph