Tutorial 7 - Questions
Absorption costing and marginal costing
Maya Bhd makes only one product, the detailed standard cost of which is as follows:
Per unit
RM
Direct materials 40
Direct labour 25
Variable factory overhead 10
Fixed factory overhead 25
Variable non-factory overhead 15
Fixed non-factory overhead 20
The above unit cost for fixed factory overhead and fixed non-factory overhead are based on a monthly
budget of 3,000 units produced and sold.
2,400 units are in stock at the beginning of Month 1 and actual units produced and sold for the next
two months are as follows:
Month 1 Month 2
Production (units) 2,800 2,600
Sales (units) 2,200 3,800
Required:
RM RM
Sales 1,120,000
Variable expenses:
Variable cost of goods sold 462,000
Variable selling and administrative 168,000 (630,000)
Contribution margin 490,000
Fixed expenses:
Fixed manufacturing overhead 300,000
Fixed selling and administrative 200,000 (500,000)
Net operating loss (10,000)
1
Production and cost data for the month are as follows:
RM
Units produced 30,000
Units sold 28,000
Required:
BEC Limited operates an absorption costing system. Its budget for the year ended 31
December 20X1 shows that it expects its production overhead expenditure to be as follows:
RM
Machining department 1,080,000
Hand finishing department 840,000
During the year it expects to make 200,000 units of its product and to sell 180,000 units.
The company uses the departmental basis for calculating absorption rate as follows:
Department Basis
Machining Machine hours
Hand finishing Labour hours
Required:
a) Calculate appropriate pre-determined absorption rates for the year ended 31 December
b) Calculate the under/over absorption of overhead for each department of the company for
March 20X1.
2
SELF-PRACTICE QUESTION
The following information is provided for a company that sells one product:
June
Sales (unit) 110,000
Production (units) 140,000
RM Per unit
Direct material 9
Direct Labour 3
Production overhead 6
Selling price 25
i) The normal activity level upon which the per unit figures are based is 100,000 units per month.
ii) Production overheads are absorbed on the basis of 200% on direct labour costs.
iii) Production overhead is 60% fixed. Administration overhead amounts to RM 300,000 per month.
REQUIRED:
a) Prepare profit and loss statements on the basis of Marginal Costing for June.
b) Prepare profit and loss statements on the basis of Absorption Costing for June.
During the quarter ended 31 March, 24,500 machines were made and 22,800 were sold at the
budgeted selling price. Actual costs were incurred on the same basis as the budgeted cost
structure.
Required:
3
(a) Prepare, for the quarter ended 31 March, separate profit and loss accounts:
(i) using the absorption principle
(ii) using the marginal principle
(b) Explain the difference between the net operating profit arising from your answer to (a)
(ii) and the budgeted net profit.