Marginal and Absorption Costing, I.S.

JJoanne4y ago

Hello John, A company manufactures a unique device that is used to boost Wi-fi signals. The following data relates to the first month of operation. Beginning Inventory. 0 Units produced. 40,000 Units sold. 35,000 Selling price per unit. 120 Selling and administrative expenses Variable per unit. 4 Fixed(total of the month) 1,120,000 Manufacturing costs Direct materials cost per unit. 30 Direct labour cost per unit. 14 Variable manufacturing overhead cost. 4 Fixed manufacturing overhead cost. 1,280,000 The question requires income statement under absorption and marginal costing. Are fixed overheads estimated to be 1,120,000 regardless of Units produced? Therefore we shall need to adjust for the amount 1,280,000? Also, I'm confused about how to work out the Selling and administrative expenses? Thank you so much.

John MoffatTutor4y ago#1

1. For the fixed manufacturing overheads, you need to calculate the absorption rate (based on the budgeted overheads and the budgeted production). In the statement, the total overheads charged will be the actual production multiplied by the absorption rate that you have calculated. You then adjust for the over or under absorption (the difference between the amount charged/absorbed and the actual total). 2. The selling expense is the actual number sold multiplied by the variable selling cost per unit. (The above is for the absorption statement. For the marginal statement you work on the contribution. I work through a similar example using both absorption and marginal costing in my free lectures.)

JJoanne4y ago#2

Alright, thank you John! I understand better now. Except it's still confusing on what the budgeted overheads are, are they the fixed manufacturing total of the month(1,120,000)? I will re-watch the lectures. Thank you.

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