Question Tag: Absorption Costing

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 20 Marks

ICMA – Nov 2024 – L1 – Q1a – Marginal and Absorption Costing

Prepares profit or loss statements using both marginal costing and absorption costing methods.

Profit or Loss Statement using Marginal and Absorption Costing
The following data has been extracted from the operating records of Agongon LTD for the last two quarters of the year to 31 December, 2023:

Quarter 3 4
Production units 8,400 10,200
Sales units 6,600 11,400

GH¢
Selling price per unit 120
Variable manufacturing cost per unit:

  • Direct material cost 24
  • Direct labour cost 18
  • Variable overheads 12

Fixed production overheads are budgeted at GH¢144,000 for a budgeted production of 9,600 units per quarter. These overheads are absorbed on a per-unit production basis.

Non-production overheads comprised:

  • Fixed administration expenses of GH¢48,000 per quarter
  • Selling and distribution expenses 10% of sales.

Required:
Prepare a statement of profit or loss for each quarter using:
a) The Marginal Costing technique
b) The Absorption Costing technique

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "ICMA – Nov 2024 – L1 – Q1a – Marginal and Absorption Costing"

  • 20 Marks

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

Chukwukah Nigeria Limited manufactures three products, JEL, JET and JAL. Demand for
products JEL and JET is relatively elastic whilst demand for product JAL is relatively
inelastic. Each product uses the same materials and the same type of direct labour but
in different quantities. For many years, the company has been using full absorption
costing and absorbing overheads on the basis of direct labour hours. Selling prices are
then determined using cost plus pricing. This is common in the company‟s industry with
most competitors applying a standard mark-up.
Budgeted production and sales volumes for JEL, JET and JAL for the next year are
25,000, 20,000 and 27,600 units respectively.
The budgeted direct costs of the three products are shown below:

In the coming year, Chukwukah also expects to incur indirect production costs of
N6,887,000, which are analysed as follows:

The following additional data relates to each product:

The management of Chukwukah Nigeria Limited wants to boost sales revenue in order to
increase profits but its capacity to do this is limited because of its use of cost plus
pricing and the application of standard mark-up. The management accountant has
suggested using activity based costing (ABC) instead of full absorption costing, since
this will alter the cost of the products and may therefore enable a different price to be
charged.

Required:
a. Calculate the budgeted full production cost per unit of each product using absorption costing, rounded to two decimal places. (6 Marks)

b. Calculate the budgeted full production cost per unit of each product using activity-based costing (ABC), rounded to two decimal places. (8 Marks)

c. Discuss the impact on selling prices and sales volumes of each product that could result from changing to activity-based costing. (6 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PM – May 2021 – L2 – Q6 – Costing Systems and Techniques"

  • 15 Marks

PM – Nov 2014 – L2 – Q6 – Standard Costing and Variance Analysis

Reconcile budgeted and actual gross profits for GOODLAND Limited, including variance calculations.

GOODLAND Limited produces and sells a single product. The company adopts a standard absorption costing system and absorbs overheads on the basis of direct labour hours. Presented below are the standard cost details and selling price for a single unit of the product:

It has been estimated that the production and sales for the month would be 2,000 units. However, the estimated production for the month has been used as a basis for determining the fixed overhead absorption rate.

The actual results for the month are as follows:

Required:

Prepare a statement that reconciles the budgeted gross profit with the actual gross profit for the month with a detailed computation of all the variances involved. (15 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PM – Nov 2014 – L2 – Q6 – Standard Costing and Variance Analysis"

  • 20 Marks

PM – Nov 2020 – L2 – Q3 – Standard Costing and Variance Analysis

Reconcile budgeted and actual profit using variance analysis and evaluate fixed overheads under absorption costing.

Toma Paste Nigeria Limited produces tomato paste which serves as an alternative for an immediate stew for working mothers instead of using fresh tomatoes. For the forthcoming period, the company’s budgeted fixed costs were ₦600,000 and budgeted production and sales were 13,000 units.

The product has the following standard cost:

Description Cost (N)
Selling price 500
Materials: 5kg @ ₦40/kg 200
Labour: 3hrs @ ₦40/hr 120
Variable overheads: 3hrs @ ₦30/hr 90

Actual results for the period were:

  • 11,000 units were made and sold, earning revenue of ₦5,720,000.
  • 66,000 kg of materials were bought at a cost of ₦2,970,000, but only 63,000 kg were used.
  • 36,000 hours of labour were paid for at a cost of ₦1,422,000.
  • The total cost for variable overheads was ₦1,170,700 and fixed costs were ₦400,000.

The company uses marginal costing and values all inventory at standard cost.

Required:
a. Prepare a statement reconciling actual and budgeted profit using appropriate variances. (12 Marks)
b. Recalculate the fixed production overhead variances, assuming the company uses absorption costing. (4 Marks)
c. Discuss possible causes for the labour variances you have calculated. (4 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PM – Nov 2020 – L2 – Q3 – Standard Costing and Variance Analysis"

  • 1 Marks

MI – Nov 2020 – L1 – SA – Q9 – Costing Techniques

Determine when the profit under marginal costing equals that of absorption costing.

In which of the following will the profit of marginal costing equal absorption costing?

A. There is only closing stock

B. There is only opening stock

C. There is both opening and closing stock

D. There is no change in stock levels

E. There are lower fixed costs

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – Nov 2020 – L1 – SA – Q9 – Costing Techniques"

  • 20 Marks

PM – May 2018 – L2 – Q2 – Standard Costing and Variance Analysis

Calculate sales variances and discuss their significance in standard costing.

Nwokocha and Sons Bakery Limited uses absorption costing technique in its
accounting system. The company produces and sells three bakery products, namely
four corner loaf (F), round corner loaf (R) and executive loaf (E) which are
substitutes for each other. The following standard selling prices and cost data
relate to these three products:

Annual budgeted fixed production overhead was N3,840,000. The company policy
is that overhead will be absorbed on a machine hour basis. The standard machine
hour for each product and the monthly budgeted level of production and sales for
each product are as follows;


Actual volumes and selling prices for the three products in a particular month are
as follows:

a. Calculate the following variances for overall sales for the particular month:
i. Sales price variance; (2 Marks)
ii. Sales volume profit variance; (2 Marks)
iii. Sales mix profit variance; and (3 Marks)
iv. Sales quantity profit variance. (3 Marks)
b. Determine the monthly budgeted profit for the company. (6 Marks)
c. Discuss the significance of mix variances in a standard costing system?
(4 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PM – May 2018 – L2 – Q2 – Standard Costing and Variance Analysis"

  • 20 Marks

MI – Nov 2014 – L1 – SB – Q2 – Costing Methods

This question requires preparing profit statements using the absorption costing approach.

LADUGBO Limited, a company which manufactures and sells a single product named BETA, has the following data relating to the year 2015:

Particulars N
Selling Price 45.00
Direct Material Cost 10.00
Direct Wages Cost 4.00
Variable Overhead Cost 2.50

The following forecasts of sales and production are expected during the first six months of 2015:

Particulars January-March April-June
Sales (units) 60,000 90,000
Production (units) 70,000 100,000
  • Fixed production overhead costs are budgeted at N400,000 per annum. Normal production level is 320,000 units per annum.
  • Variable selling and distribution cost is N1.50 per unit sold, while fixed administration cost is N240,000 per annum.

You are required to:
Prepare profit statements for each of the two quarters, in a columnar format, using the absorption costing approach. (20 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – Nov 2014 – L1 – SB – Q2 – Costing Methods"

  • 1 Marks

MI – Nov 2014 – L1 – SA – Q17 – Costing Methods

This question asks about the appropriate method for allocating overhead costs in product costing.

A method of product costing which aims to include, in the total cost of a product, an appropriate share of the organisation’s total overhead is:
A. Marginal costing
B. Activity-based costing
C. Differential costing
D. Absorption costing
E. Product costing

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – Nov 2014 – L1 – SA – Q17 – Costing Methods"

  • 20 Marks

MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

Paquris Limited is into the manufacture of various products. The following data refer to one of its products for a one-month period:
Direct material – Units 120,000 ₦3,000,000
Direct labour – Hours 120,000 ₦6,600,000
Direct expenses ₦2,000,000
Variable production overhead ₦1,500,000
Fixed production overhead ₦3,600,000
Variable non-production overhead ₦1,020,000
Fixed non-production overhead ₦4,740,000
Sales – Units 115,000 ₦25,300,000
Opening inventory –

You are required to:
a. Prepare the statement of profit or loss using full absorption costing. (8 Marks)
b. Prepare the statement of profit or loss using marginal costing. (7 Marks)
c. Prepare closing inventory valuation on both bases. (3 Marks)
d. State and explain the differences between (a) and (b). (2 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2022 – L1 – SB – Q3 – Costing Techniques"

  • 1 Marks

MI – May 2022 – L1 – SA – Q3 – Costing Methods

Condition under which variable and absorption costing produce the same profit.

Variable costing and absorption costing statements produce the same profit under which of the following conditions?

A. Production equals sales
B. Production exceeds sales
C. Sales exceed production
D. Sales equal fixed overhead
E. Production equals fixed overhead

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2022 – L1 – SA – Q3 – Costing Methods"

  • 1 Marks

MI – Nov 2014 – L1 – SA – Q8 – Costing Techniques

Calculate the fixed overhead absorption rate based on the difference in profit under marginal and absorption costing.

A company had opening inventory of 36,000 units of product Zee, production of 126,000 units, and closing inventory of 31,500 units. Profit based on marginal costing was N2,250,000, and on absorption costing was N1,548,000. What is the fixed overhead absorption rate per unit?

A. N156.00
B. N150.00
C. N62.50
D. N49.14
E. N5.37

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – Nov 2014 – L1 – SA – Q8 – Costing Techniques"

  • 1 Marks

MI – May 2021 – L1 – SA – Q11 – Costing Techniques

Calculate profit difference between marginal and absorption costing methods.

Last month when a company had an opening inventory of 16,500 units and closing inventory of 18,000 units, the profit using absorption costing was ₦40,000. The fixed production overhead rate was ₦10 per unit. Using marginal costing, the profit for last month would be:

A. ₦75,000
B. ₦65,000
C. ₦55,000
D. ₦25,000
E. ₦15,000

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2021 – L1 – SA – Q11 – Costing Techniques"

  • 12 Marks

MI – May 2016 – L1 – SB – Q1b – Costing Methods

Calculate production cost per unit, variable cost, contribution, break-even point, and total non-production cost.

Grammar Limited manufactures product G of which the sales for the year 2015 was ₦25,000,000 at the unit price of ₦40. Production overhead and selling overhead were ₦2.50 and ₦1.50 per unit, respectively. The following additional information are available for the year 2015:

₦/unit
Direct material used 8.50
Direct labour 7.50
Fixed production overhead 6.00
Fixed selling overhead 2.00
Administration overhead 4.00

You are required to calculate:

i. Full production cost per unit and value
ii. Variable cost per unit and value
iii. Contribution per unit and value
iv. Break-even point in value
v. Total non-production cost per unit and value
vi. New break-even point (to the nearest Naira) if additional distribution expenses of ₦1.50/unit was incurred

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2016 – L1 – SB – Q1b – Costing Methods"

  • 8 Marks

MI – May 2016 – L1 – SB – Q1a – Costing Methods

State two advantages and two disadvantages of absorption and marginal costing.

State any TWO advantages and any TWO disadvantages of absorption and marginal costing.
(8 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2016 – L1 – SB – Q1a – Costing Methods"

  • 1 Marks

MI – May 2016 – L1 – SA – Q6 – Costing Techniques

Calculate the net profit using marginal costing based on given absorption costing profit and inventory data.

The net profit was N2,650,000 using absorption costing and the closing inventory was 14,600 units. Production overhead absorption rate was N18.50 per unit. If the Non-production absorption rate was N14.00 per unit, then the net profit using marginal costing is:
A. N2,379,900
B. N2,445,600
C. N2,650,000
D. N2,854,400
E. N2,920,100

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MI – May 2016 – L1 – SA – Q6 – Costing Techniques"

  • 15 Marks

MA – Nov 2019 – L2 – Q3b – Standard costing and variance analysis

Calculate and analyze sales-related variances for Sasraku Ltd’s three products based on given data for the last period.

b) Sasraku Ltd manufactures and sells standard quality fuel pumps. Other companies integrate these pumps in their production of petrol engines. At present, Sasraku Ltd manufactures only three different types of fuel pumps: oil pump, gas pump, and diesel pump. Simon, the Management Accountant, allocates fixed overheads to these pumps on an absorption costing system.

The standard selling price, volumes, and cost data for these three products for the last period are as follows:

The total fixed production overhead for the last period was estimated in the budget to be GH¢526,500. This was absorbed on a machine-hour basis.

The Board of Directors has decided to calculate the variances for the period to analyze the sales performance of the company.

The following information of actual volumes and selling prices for the three products in the last period was obtained:

Required:

i) Calculate the standard profit per unit.
(3 marks)

ii) Calculate the following variances for overall sales for the last period:
Sales profit margin variance
Sales mix profit variance
Sales quantity profit variance
Sales volume profit variance
(8 marks)

iii) Prepare a statement showing the reconciliation of budgeted profit for the period to actual sales less standard cost
(4 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2019 – L2 – Q3b – Standard costing and variance analysis"

  • 15 Marks

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

Bosco Ltd makes and sells one product. Currently, it uses absorption costing to measure profits and inventory values. The budgeted production cost per unit is as follows:

Item Cost (GH¢)
Direct labour (3 hours at GH¢6 per hour) 18
Direct materials (4 kilograms at GH¢7 per kilo) 28
Production Overhead (Fixed cost) 20
Total Cost per Unit 66

Normal output volume is 16,000 units per year, and this volume is used to establish the fixed overhead absorption rate for each year. Costs relating to sales, distribution, and administration are:

  • Variable: 20% of sales value
  • Fixed: GH¢180,000 per year

There were no units of finished goods inventory on 1st October 2015. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GH¢140. For the two six-monthly periods detailed below, the number of units to be produced and sold are budgeted as follows:

Period Production (units) Sales (units)
Six months ending 31st March 2016 8,500 7,000
Six months ending 30th September 2016 7,000 8,000

The entity is considering whether to abandon absorption costing and use marginal costing instead for profit reporting and inventory valuation.

Required:

i) Calculate the budgeted fixed production overhead costs for each of the six-monthly periods. (3 marks)

ii) Prepare profit statements for management using:

  • Marginal costing
  • Absorption costing

(9 marks)

iii) Prepare an explanatory statement reconciling the profits under marginal costing with those of absorption costing.

(3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – May 2017 – L2 – Q3a – Standard costing and variance analysis"

  • 20 Marks

IMAC – NOV 2023 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit statements for January and February 2023 using marginal costing and absorption costing methods.

Alokome Plc is a company that produces and sells one product “Iga”. Information relating to the operations of Alokome Plc for the first two months of 2023 is as follows:

i) Iga sells for GH₵500 per unit.
ii) There were no inventories of Iga at the end of December 2022.
iii) Other relevant information is as follows:

Cost Element GH₵
Direct material and wages 220
Variable production overhead 30

Budgeted and actual costs per month:

Cost Element GH₵
Fixed production overhead 990,000
Fixed selling and administrative expenses 400,000
Variable selling expenses 12.5% of sales

Normal capacity: 110,000 units per month

Number of units produced and sold:

Month Sales (units) Production (units)
January 128,000 140,000
February 110,000 102,000

Required:
Using the information above, prepare in a columnar form profit statements for January and February 2023 using:
a) Marginal costing (10 marks)
b) Absorption costing (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "IMAC – NOV 2023 – L1 – Q1 – Marginal Costing and Absorption Costing"

  • 20 Marks

IMAC – MAR 2023 – L1 – Q3 – Marginal Costing and Absorption Costing | Scope of Management Accounting

Explain qualities of management accounting information, and differences between marginal and absorption costing.

a) Management accounting systems obtain information from both internal and external sources. Cost accounting system is one major source of management accounting information, and such information is only useful to managers if it possesses certain qualities.

Required:
In reference to the statement above, explain FIVE (5) qualities of management accounting information.
(10 marks)

b) Explain the following briefly:
i) Cost center (2.5 marks)
ii) Profit center (2.5 marks)

c) Explain TWO (2) differences between a marginal costing system and an absorption costing system.
(5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "IMAC – MAR 2023 – L1 – Q3 – Marginal Costing and Absorption Costing | Scope of Management Accounting"

  • 20 Marks

IMAC – MAY 2021 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit and loss statements for QQQ Ltd using marginal and absorption costing techniques.

The following data has been extracted from the operating records of QQQ Ltd for the last two quarters of the year to 31 December 2020:

Quarter 3 4
Production units 7,000 8,500
Sales units 5,500 9,500
Description Amount (GH¢)
Selling price per unit 100
Direct material cost per unit 20
Direct labour cost per unit 15
Variable overheads per unit 10
  • Fixed production overheads are budgeted at GH¢120,000 for a budgeted production of 8,000 units per quarter. These overheads are absorbed on a per unit of production basis.
  • Non-production overheads comprised:
    • Fixed administration expenses GH¢40,000 per quarter
    • Selling and distribution expenses 10% of sales

Required:
a) Prepare a statement of profit or loss for each quarter using the Marginal Costing technique. (10 marks)

b) Prepare a statement of profit or loss for each quarter using the Absorption Costing technique. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "IMAC – MAY 2021 – L1 – Q1 – Marginal Costing and Absorption Costing"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@knowsia.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan