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Please help, confuse with this question(Variable Costing and Marginal Costing).

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Please help, confuse with this question(Variable Costing and Marginal Costing).

  • This topic has 0 replies, 1 voice, and was last updated 9 years ago by franksromario.
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  • April 3, 2016 at 1:35 pm #308904
    franksromario
    Member
    • Topics: 2
    • Replies: 1
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    A company manufactures buns which are considered the main product for its store located in Montego Bay, St. James. On January 1, 2015, management budgeted fixed production overheads to amount to $48,000,000. Based on the company’s policies, overheads are absorbed based on the budgeted direct labour hours to be worked. At the start of the year, the entity had budgeted direct labour cost amounting to $60,000,000. Additionally, the production manager estimated that the budgeted direct labour hour (DLH) rate is $25. The rate is the same as the actual rate below.
    For the year ended December 31, 2015 the following actual results are depicted below:

    Production (units) 1,500,000
    Sales (units) 1,250,000
    Sales price per unit $200
    Direct materials per unit $100
    Direct labour cost per unit $25
    Variable production overheads per unit $25
    Variable selling costs per unit $25
    Total fixed selling costs $6,000,000
    Fixed Overheads cost $45,000,000

    Note: each bun actually uses one direct labour hour (DLH). The entity had no inventory at the start of the period.

    Required:
    a. Using variable costing approach, prepare an income statement for the year ended December 31, 2015.
    b. Using absorption costing, calculate under or over absorption of overheads. ]
    c. Using absorption costing approach, prepare an income statement for the year ended December 31, 2015

    This is what I started to do
    For Question a

    Sales (1,250,000 x 200) $250,000,000
    Variable Cost(1,250,000 x 175) $ 218,750,000
    Contribution $31,250,000

    This is where I am lost. What do I do next. Should I subtract Fixed Overhead and Fixed Selling because I would receive a lost??

    For Question b

    Reconciliation
    Production (1,500,000 x 200) $300,000,000
    Sales (1,250,000 x 200) $250,000,000
    = $50,000,000
    OAR 48,000,000/60,000,000= $0.8
    Difference 50,000,000 x 0.8 = $40,000,000

    Budgeted Overheads = $48,000,000
    Actual Overheads = $45,000,000
    under = $3,000,000
    Actual Activity Level =

    Under/Over Absorbed = 45,000,000 – (0.8 x ????) lost from this point onward..

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