Brown Printing, a small family-owned business, began operations on 01 March, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company's independent accountant compiled the following data for the month of March. They have also requested an income statement

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Sales price R90 per book
Number of units produced 15,000 books
Number of units sold 10,000 books
Direct materials cost R15 per book
Direct labour cost R6 per book
Variable manufacturing overhead R4 per book
Fixed manufacturing overhead R240,000 per month
Selling cost R3 per book
Administrative expenses R160,000 per month

The owners want to understand these numbers and how they can use the information to run the business

6.1 Identify and describe two advantages of using variable costing and three limitations of using absorption costing

6.2 (i) Calculate the unit cost of goods sold and prepare the income statement for March using variable costing.
(ii) Calculate the unit cost of goods sold and prepare the income statement for March using absorption costing.
(iii) Define and explain absorption costing and variable costing.
(iv) Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.

Answer rating: 100% (QA)

61 Advantages of varaible costing a It helps in undertaking CVP Cost volume profit analysis b in this costing only varaible production costs will be allocated to products and fixed production costs wi... View the full answer