- 20 Marks
Question
In the first quarter of the year, the following data was given in respect of a product.
Required: i. Prepare the statement of profit or loss using both absorption and marginal costing bases in a columnar format. ii. Reconcile the profits in (i) above.
Answer
i. Statement of Profit or Loss
| Description | Absorption Costing (₦) | Marginal Costing (₦) |
|---|---|---|
| Sales | 15,000,000 | 15,000,000 |
| Variable production cost | 10,080,000 | 10,080,000 |
| Other variable expenses | 1,800,000 | 1,800,000 |
| Fixed production expenses | 4,320,000 | – |
| 16,200,000 | 11,880,000 | |
| Less: closing inventory | (2,700,000) | (1,980,000) |
| Cost of sales / Variable cost | 13,500,000 | 9,900,000 |
| Gross profit / Contribution | 1,500,000 | 5,100,000 |
| Less: Fixed Production Expenses | – | 4,320,000 |
| Net Profit | 1,500,000 | 780,000 |
Workings Closing inventory: Absorption basis 4,000 x (420 + (4,320,000/24,000) +75) = 4,000 x 675 = ₦2,700,000
Marginal basis 4,000 x (420 + 75) = ₦1,980,000
ii. Reconciliation of Profits
| Description | ₦ |
|---|---|
| Profit as per absorption basis | 1,500,000 |
| Fixed cost included in closing inventory (2,700,000 – 1,980,000) | (720,000) |
| Profit as per marginal basis | 780,000 |
- Topic: Costing Techniques
- Series: Nov 2024
- Uploader: Salamat Hamid