Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › MARGINAL COSTING
- This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
- AuthorPosts
- October 20, 2018 at 7:39 pm #479334
There is this queston confusing me as to why the variable manufacturing costs per unit was multiplied by units sold during the year instead of production units
QUESTION:
Budgeted production 80,000 units
Actual production 70,000 units
Units sold during the year 50,000 units
Selling price per unit 200Costs
Variable costs : 8,400,000
(Of this 60% is manufacturing and 40% is selling and distribution expenses)Fixed costs 2,020,000
(Of this 50% is manufacturing and 50% is selling and distribution expenses)As it was the first year of operation, there is no inventory at the beginning of the year. Actual input prices per unit and actual quantities per unit of the product were equal to the standard.
SUGGESTED SOLUTION
Sales (50,000 units x Tshs200,000) 10,000,000
Less: Variable costs
Manufacturing expenses (W1) 3,600,000
Variable selling and distribution expenses (8,400 million x 0.40) 3,360,000 (6,960,000)
Contribution margin 3,040,000Less: Fixed manufacturing cost 1,010,000
Fixed selling and distribution expenses (Tshs2,020,million x 0.50)1,010,000 (2,020,000)
Operating income 1,020,000…………………………………………………………
What is really confusing me i that the Variable manufacturing expenses where by the variable manufacturing costs per unit (72,000 per unit) was multiplied by units sold during the year instead of production units, It was worked out as following:
Variable manufacturing costs per unit = (Tshs8,400 million x 0.60)/70,000 units
=Tshs72,000 per unit, For 50,000 units sold during year manufacturing cost is 50,000 x Tshs72,000 = Tshs3,600 millionI seek explanation on why the variable manufacturing costs per unit (72,000 per unit) was multiplied by units sold during the year instead of production units
October 21, 2018 at 9:21 am #479349I don’t know which book you are using, but although the answer is correct the way it is explained is not very good.
The contribution is the sales less the variable cost of goods sold.
The actual total variable production cost per unit is (8,400,000 x 0.6)/70,000 = 72. However, to get the cost of goods sold, we subtract the variable production cost of the closing inventory of 20,000 units from the total cost of production. So the cost of goods sold = (8,400,000 x 0.6) – (20,000 x 72) = 3,600,000.
I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper MA (F2) and cover everything needed to be able to pass the exam well.
I would also suggest that you use a Revision Kit from one of the ACCA approved publishers (BPP or Kaplan) because they are full of exam standard questions 🙂
- AuthorPosts
- You must be logged in to reply to this topic.