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Dear Sir
I need help as I do not understand this question,
Q1. Budgeted production in factory for next period is 4,800 units. Each unit requires 5 labour hours to make. Labour is paid B$10 per hours. Idle time represent 20% of the total direct labour time.
The answer is B$300,000. (I dont get it)
Based on my calculation it is 4,800 x 5 = 24,000 x B$10
Total direct labour cost = B$240,000Idle time is 20% of Direct labour = 24,000 x 20%
Idle cost = 4,800 hrs x B$10Total direct labour is B$288,000.
Q2. A company manufacture and sell a single product. In two consecutive months the following level of production and sales (in units) occurred.
Month 1 Month 2
Sales 3,800 4,400
Production 3,900 4,200Opening inventory for month 1 was 400 units. Profit or loss have been calculated for each month using both absorption and marginal costing principles.
I dont get why the answer is as per below:
Absorption costing profit / (loss) Marginal costing profit /(loss)
Month 1 Month 2 Month 1 Month 2
200 3,200 400 4,400Thank in advance.
Q1. For every 100 hours they pay for, idle time will be 20 hours and therefore 80 hours will be available for production.
Putting it the other way round, for every 80 hours to produce they need to pay for 100 hours.
Therefore if 5 production hours are needed, then they will need to pay for 100/80 x 5 hours.
Q2 You have not copied the whole question, because the question does not ask you to calculate the profits (there is not enough information to be able to calculate them). It asks you which profits are consistent with the information i.e. which profits are possible.
You will know from my free lectures (I assume that you have watched the lectures) that the only difference ever between the two profits is due to the change in inventory.
In month 1, the produce more than they sell and therefore the inventory increases, and therefore absorption shows the higher profit.
In month 2, they sell more than they produce and therefore the inventory falls, and therefore marginal shows the higher profit.In only one of the 4 alternative answers is the above the case.
If you have not watched the lectures then do – they are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
Dear John
Thank you for the detailed explanation. I have go through your video and read the note too.
I could not understand the question well maybe due to the language.
Will go through and do my best to understand the concept.
Appreciate your assistance.
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