ACCA MA · Guided practice (Show me how)
Chapter 10: The Management Accountant’s Profit Statement – Marginal Costing
Marginal costing, contribution, and reconciling the two profits
X plc produces one product, desks.
Each desk is budgeted to require 4 kg of wood at $3 per kg, 4 hours of labour at $2 per hour, and variable production overheads of $5 per unit.
Fixed production overheads are budgeted at $20,000 per month and average production is estimated to be 10,000 units per month.
The selling price is fixed at $35 per unit. There is also a variable selling cost of $1 per unit and a fixed selling cost of $2,000 per month.
During the first two months: January - production 11,000 units, sales 9,000 units; February - production 9,500 units, sales 11,500 units. All other results were as budgeted.
Under absorption costing the profits are $63,000 for January and $77,500 for February.
(a) Cost card - marginal costing
Prepare X plc's marginal costing cost card for one desk for January and February, and state the contribution per unit.
(b) Profit statements
Prepare the marginal costing profit statements for January and February.
(c) Reconciliation of the two profits
Prepare a statement reconciling the absorption costing profits of $63,000 for January and $77,500 for February with the marginal costing profits for those months.
Opening this exercise…