Gold Coast Manufacturer company produces and sells a sole item. The Gold Coast operates a standard marginal costing system and a just in time purchasing and production syste

Gold Coast Manufacturer company produces and sells a sole item. The Gold Coast operates a standard marginal costing system and a just in time purchasing and production system.

There is no inventory of raw materials or finished goods is held.

Following Details of the budget and actual data for 2017:

Budget data

• Standard production costs per unit:
• 
  
• Direct material:    8.00 kg, $ 10.80 per kg.                                         86.40
• 
  
• Direct labour:   1.25 hours, $18.00 per hour                                         22.50
• Variable overheads:    1.25 hours, $6.00 per direct labour hour            7.50
• 
  
• Standard selling price:                                                      $180 per unit
• 
  
• Budgeted fixed production overheads:                                   $170,000
• Budgeted production & sales:                                                          10,000 units

Actual data:

• Direct material:                                          74,000 kg, $11.20 per kg
• 
  
• Direct labour:                                            10,800 hours, $19.00 per hour
• Variable overheads:                                   $70,000
• 
  
• Actual selling price:                                   $184 per unit
• 
  
• Actual fixed production overheads:                    $168,000
• Actual production & sales:                             9,000 units

Instructions:

1. Prepare a statement using marginal costing principles for Gold Coast Manufacturer that reconciles the budgeted profit and the actual profit for 2017. Your statement should show the variances in as much detail as possible.
2. 
   
3. Explain why the variances used to reconcile profit in a standard marginal costing system used by Gold Coast Manufacturer are different from those used in a standard absorption costing system used by the same company.
4. 
   
5. Clarify and discuss the arguments for the use of traditional absorption costing rather than marginal costing for profit reporting and inventory valuation for Gold Coast Manufacturer.
6. Prepare a presentation for the class.

Answer rating: 100% (QA)

a Budgeted and Actual Data Budgeted Actual Direct Materials per unit ... View the full answer