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Walk talk manufacture a cordless telephone system . At the beginning of the financial year ending 30 Nov 2009 , the firm budgeted to make and sell 50,000 units of its only product , the NOVA at the selling price of 30 $ per unit . other budgeted information is as follows :
Direct martial $4.00 per unit Direct labour $6.00 per unit
fixes production overhead for the year were budgeted at $800,000 to be absorbed on the basis of the number of units product . fixed selling and administration expenses were estimated at $100,000 to be absorbed on the basis of the number of units sold .
At the beginning of the year ( 1 Dec 2008 ) there were no units in inventory and no units were budgeted to be in inventory at end of the year ( 30 Nov 2009 ) .
situation at 1 Dec 2009 .
the market of cordless phone has changed rapidly over the course of one year . In response to competitive pressure, company had to make number of changes in NOVA model and range of colours available . there are now three different versions of NOVA and eight different colours.
During the year cost of direct martial and direct labour per unit have been incurred in line with budgeted cost above. Fixed production overhead have risen to $830,000 , due to the higher than expected rent review for factory. Selling and distribution costs were budgeted.
production has increased to $ 52,000 units, however despite of chance of product specification sales have only reached to $45,000 units.
Required :
a) prepare the income statement for the year ended 30 Nov 2010 using the following two methods.
1- absorption costing
2- marginal costing
b) compare the profits of absorption and marginal costing calculated above and explain the reasons for any differences.
You have not said why you have posted this question that you have copied!
If you are simply expecting a full answer, then I am sorry but we do not provide answers to test questions. You must have an answer in whichever book you found the question and you should ask about anything in the answer that you do not understand and then I will try and help. (If the book does not provide an answer then you really should be using a different book – the ACCA approved publishers always provide full answers to their questions.)
If you watch our free lectures then everything needed for Paper F2 is explained – our lectures are a complete course.
this is answer :-
Prepare the income statement for the year ended 30 Nov 2010 using the following two methods
Absorption costing
Items Value ($) 000’ Value ($) 000’
Sales 1,350
Less Variable costs
Direct labour 312
Direct material 208
Fixed production costs absorbed 832
Fixed selling costs absorbed 90 1,442Gross profit (92)
Less fixed costs overhead 830
Net loss (922)Marginal costing
Items Value ($) 000’ Value ($) 000’
Sales 1,350
Less variable costs
Direct material 312
Direct labour 208 (520)
Gross profit margin 830
Less fixed costs
Fixed production overhead 830
Fixed selling overhead 100
Net loss (100)Compare the profits of absorption and marginal costing calculated above and explain the reasons for any differences
Under the absorption costing, fixed manufacturing overheads are treated as product costs and it is believed that products cannot be produced without the resources provided by fixed manufacturing overheads. On the other hand, marginal costing, fixed manufacturing overhead are treated as periodic costs and they will be incurred whether is production or not. Therefore, it is believed that only the variable costs are relevant to decision-making.
Workings
Standard fixed production overhead = $800,000/50,000=$16
Standard fixed selling overhead = $100,000/50,000=$2
Therefore, the fixed production costs absorbed =$16*52,000=$832,000
While the variable selling overheads absorbed =$2*45,000= 90,000You have typed out a full question and now you have typed out a full answer.
Why?
If you have a problem with anything in the answer then say so and I will try and explain. Otherwise I have no idea what your problem is!
Again, I do suggest that you watch our free lectures. They cover everything you need to be able to pass the F2 exam well (including, obviously, the understanding needed for this particular question).
Is the answer correct ?? and the problem in the under/over absorption , how I can calculate it in the question ???
The answer is not correct.
You have subtracted the cost of production for 52,000 units from the revenue from sales of 45,000 units. What about the closing inventory?
Also you have subtracted the fixed selling overheads in arriving at the gross profit. They should be subtracted after the gross profit.
Also you have subtracted fixed production overheads twice – the amount absorbed of 832 and also the actual overheads of 830.
The over/under absorption is the difference between the amount absorbed and the actual figure.
Again, you really should watch the free lectures because all of this is dealt with in the lectures – I cannot type them all out here.
(And the question can not possibly be asked in this form in the actual exam. It is worth doing for practice, but this topic will only be asked as MCQ’s and so you could not be asked to produce a full statement.)
actually, I am not student in AccA ,but If you want help me , give me the full correct answer
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