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Greetings sir.
I was trying to solve two questions, I got them wrong, and could not understand the answer to them.
7a.23
The questions shows a repeated method of apportionment, but says to use the step down method. However, I see both service departments serving equal no. of other service centers , ie 1. The confusion then lies, which one to deduct first ? So I deducted canteen first, and got the overall answer wrong, none of the 4 options even showing my answer. The answer at the back deducted Stores first, and then we get the right answer. The question is, in this situation, how do we decide the correct service center to apportion first ?7a.24
In your lecture of marginal costing, you evaluated the difference in profit by multiplying the difference in the quantity of Production less sales, with the fixed overhead rate (2,000units x $2 {ie 27-25} = $4,000) . Using this method, we should get answer B) $440,000. However, the answer is said to be A) $368,000 because we should have also included the total labour hours ($4) in the multiplication.
Please guide.Thankyou.
7a.23. Best to ignore this question. The answer should have continued to keep repeating in which case whichever you did first you would end up with the same answer. If this were to be asked in the exam as step-down (which is unlikely) then it would be made clear in the question which one to do first.
7a.24. The difference in the profits is the change in the inventory level multiplied by the standard fixed cost per unit.
The fixed overhead rate is $12 per labour hour (not $2) and each unit should take 4 hours. Therefore the fixed overhead cost per unit is 4 hours x $12 = $48 per unit.
7a.23. Ok sir.
7a.24
I think I understand what the issue was after reading your reply. In your lecture of marginal costing, it was $2 per UNIT.Here, in the question of the Revision kit, it is $12 per LABOUR HOUR, and each UNIT takes 4 hours. Therefore, to get the price of ONE UNIT, we have to multiply it $12 per labour hour by 4 hours. Next, we multiply it by the the difference in quantity, in order to get the PROFIT. 🙂
The STANDARD is to calculate using the UNIT COST in the Profit Statements.
Thanks.
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