- 12 Marks
Question
a) Resol Ltd commenced trading on 1 April 2011 making the product Resol. The standard cost sheet for Resol is as follows:
The fixed production overhead figure has been calculated on the basis of a budgeted normal output of 24,000 units per annum. Fixed Sales and Administration costs are estimated at GH¢24,000 per annum. You may assume that all budgeted fixed expenses are incurred evenly over the year.
The sales price is GH¢35.00 and the actual number of units produced and sold was as follows:
| April | May | |
|---|---|---|
| Production – units | 2,000 | 2,500 |
| Sales – units | 1,500 | 3,000 |
Required:
Prepare a profit statement for each of the months April and May using:
- Standard costing
- Absorption costing
Answer
(i) Standard Costing Profit Statement
| April | May | |
|---|---|---|
| Sales | 52,500 | 105,000 |
| Cost of Sales | 7500 | |
| Opening Stock | 30,000 | 37,500 |
| Variable production cost | (7,500) | |
| Closing Stock | 22,500 | 45,000 |
| Contribution | 30,000 | 60,000 |
| Fixed production Overheads | (10,000) | (10,000) |
| Sales & Administration Overheads | (2,000) | (12,000) |
| Profit for period | 18,000 | 48,000 |
(ii) Absorption Costing Profit Statement
| April | May | |
|---|---|---|
| Sales | 52,500 | 105,000 |
| Cost of Sales | ||
| Opening Stock | 0 | 10,000 |
| Production cost (total) | 40,000 | 50,000 |
| Closing Stock | (10,000) | 0 |
| Gross Profit | 22,500 | 45,000 |
| Sales & Administration Overheads | (2,000) | (2,000) |
| Over-absorbed fixed production overhead | 0 | (2,500) |
| Profit for period | 20,500 | 45,500 |
Workings:
Calculation of Unit Costs
| Cost Component | GH¢ |
|---|---|
| Direct Materials | 8.00 |
| Direct Labour | 5.00 |
| Variable Overhead | 2.00 |
| Variable Production Cost | 15.00 |
| Fixed Overhead | 5.00 |
| Total Production Cost | 20.00 |
Closing Stock Calculations
| Month | Units | Standard Costing | Absorption Costing |
|---|---|---|---|
| April | 500 | GH¢7,500 | GH¢10,000 |
Fixed Production Overhead
| Calculation | GH¢ |
|---|---|
| Budgeted production (24,000 units) | 120,000 |
| Fixed overhead per month | 10,000 |
| Over absorption of fixed production overhead | 2,500 |
Fixed Sales and Administration Cost
| Calculation | GH¢ |
|---|---|
| Total annual cost | 24,000 |
| Monthly cost | 2,000 |
- Tags: Fixed Overheads, Profit Statement, Standard Costing, Variable Costs, Variance Analysis
- Level: Level 2
- Topic: Standard Costing and Variance Analysis
- Series: MAY 2018
- Uploader: Kwame Aikins