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Marginal and Absorption Costing, I.S.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Marginal and Absorption Costing, I.S.

  • This topic has 2 replies, 2 voices, and was last updated 1 month ago by Joanne94.
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  • Author
    Posts
  • June 30, 2022 at 8:59 am #659657
    Joanne94
    • Topics: 10
    • Replies: 7
    • ☆

    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.

    June 30, 2022 at 3:05 pm #659681
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49974
    • ☆☆☆☆☆

    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.)

    June 30, 2022 at 8:03 pm #659694
    Joanne94
    • Topics: 10
    • Replies: 7
    • ☆

    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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