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

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

Question

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

Answer

a) Marginal Costing Statement of Profit or Loss for the two Quarters to 31st December, 2023

Quarter	3	4
Sales	792,000	1,368,000
Variable cost of goods sold
Production cost:
Opening Inventory	–	97,200
Production	453,600	550,800
Closing Inventory	(97,200)	(32,400)
Non-Production Cost
Selling & Dist. Cost	79,200	136,800
Contribution	356,400	615,600
Fixed Costs
Production	144,000	144,000
Non-production	48,000	48,000
Net profit	164,400	423,600

b) Absorption Costing Statement of Profit or Loss for the two Quarters to 31st December, 2023

Quarter	3	4
Sales	792,000	1,368,000
Cost of Sales
Opening Inventory	–	124,200
Production	579,600	703,800
Closing Inventory	(124,200)	(41,400)
Expense
Selling & Dist. Cost	79,200	136,800
Admin. Expenses	48,000	48,000
Net Profit	191,400	405,600

Tags: Absorption Costing, Financial Reporting, Marginal Costing, Profit, Variance
Level: Level 1

Topic: Marginal Costing and Absorption Costing
Series: Nov 2024

Uploader: Salamat Hamid