A new subsidiary of a group of companies was established for the manufacture and sale of...
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A new subsidiary of a group of companies was established for the manufacture and sale of Product X. During the first year of operations 90 000 units were sold at £20 per unit. At the end of the year, the closing stocks were 8000 units in finished goods store and 4000 units in work-in-progress which were complete as regards material content but only half complete in respect of labour and overheads. You are to assume that there were no opening stocks. The work-in-progress account had been debited during the year with the following costs: Direct materials Direct labour Variable overhead Fixed overhead Selling and administration costs for the year were: 714 000 400 000 100 000 350 000 Selling Administration Variable cost per unit sold (£) 1.50 0.10 Fixed cost (£) 200 000 50 000 The accountant of the subsidiary company had prepared a profit statement on the absorption costing principle which showed a profit of £11 000. The financial controller of the group, however, had prepared a profit statement on a marginal costing basis which showed a loss. Faced with these two profit statements, the director responsible for this particular subsidiary company is confused. You are required to (a) prepare a statement showing the equivalent units produced and the production cost of one unit of Product X by element of cost and in total; (b) prepare a profit statement on the absorption costing principle which agrees with the company accountant's statement; (c) prepare a profit statement on the marginal costing basis; (d) explain the differences between the two statements given for (b) and (c) above to the director in such a way as to eliminate his confusion and state why both statements may be acceptable. A new subsidiary of a group of companies was established for the manufacture and sale of Product X. During the first year of operations 90 000 units were sold at £20 per unit. At the end of the year, the closing stocks were 8000 units in finished goods store and 4000 units in work-in-progress which were complete as regards material content but only half complete in respect of labour and overheads. You are to assume that there were no opening stocks. The work-in-progress account had been debited during the year with the following costs: Direct materials Direct labour Variable overhead Fixed overhead Selling and administration costs for the year were: 714 000 400 000 100 000 350 000 Selling Administration Variable cost per unit sold (£) 1.50 0.10 Fixed cost (£) 200 000 50 000 The accountant of the subsidiary company had prepared a profit statement on the absorption costing principle which showed a profit of £11 000. The financial controller of the group, however, had prepared a profit statement on a marginal costing basis which showed a loss. Faced with these two profit statements, the director responsible for this particular subsidiary company is confused. You are required to (a) prepare a statement showing the equivalent units produced and the production cost of one unit of Product X by element of cost and in total; (b) prepare a profit statement on the absorption costing principle which agrees with the company accountant's statement; (c) prepare a profit statement on the marginal costing basis; (d) explain the differences between the two statements given for (b) and (c) above to the director in such a way as to eliminate his confusion and state why both statements may be acceptable.
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Answer rating: 100% (QA)
a Equivalent units produced Direct materials 90 000 8 000 98 000 Direct labour 90 000 4 000 94 000 Variable overhead 90 000 4 000 94 000 Fixed overhea... View the full answer
Related Book For
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
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