Intervision is a manufacturing company which produces and sells a single product, 'Street light'. The following...

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Intervision is a manufacturing company which produces and sells a single product, 'Street light'. The following is the standard cost per unit of the product: Cost Variable manufacturing Fixed manufacturing Variable selling and administration Fixed selling and administration Sales Production Sales Variable manufacturing costs Variable selling and administration costs Fixed manufacturing costs per unit are based on a predetermined rate established at a normal activity level of 18,000 production units per period. Fixed selling and administration costs are absorbed into the cost of sales at 20% of the selling price. Under/over recovery of overheads are transferred to the profit and loss account at the end of each period. The following information has been provided for two consecutive periods. Fixed manufacturing costs Fixed selling and administration costs REQUIRED Rs 22.50 17.50 4.00 15.00 59.00 Period 1 Units 17,000 16,000 Rs 1,275,000 68,000 320,000 270,000 Period 2 Units 18,000 (a) Prepare an income statement for period 1 and 2 under absorption method. 18,400 360,000 414,000 Rs 1,350,000 Page 2 of 9 72,000 315,000 270,000 [22 Marks] (b) Prepare an income statements for period 1 and 2 under the marginal costing method. [18 Marks] (c) What are the main causes of difference between marginal and absorption profits. [8 Marks] (d) State the situations in which the profit figures calculated under both absorption costing and marginal costing would be the same. [2 marks] Intervision is a manufacturing company which produces and sells a single product, 'Street light'. The following is the standard cost per unit of the product: Cost Variable manufacturing Fixed manufacturing Variable selling and administration Fixed selling and administration Sales Production Sales Variable manufacturing costs Variable selling and administration costs Fixed manufacturing costs per unit are based on a predetermined rate established at a normal activity level of 18,000 production units per period. Fixed selling and administration costs are absorbed into the cost of sales at 20% of the selling price. Under/over recovery of overheads are transferred to the profit and loss account at the end of each period. The following information has been provided for two consecutive periods. Fixed manufacturing costs Fixed selling and administration costs REQUIRED Rs 22.50 17.50 4.00 15.00 59.00 Period 1 Units 17,000 16,000 Rs 1,275,000 68,000 320,000 270,000 Period 2 Units 18,000 (a) Prepare an income statement for period 1 and 2 under absorption method. 18,400 360,000 414,000 Rs 1,350,000 Page 2 of 9 72,000 315,000 270,000 [22 Marks] (b) Prepare an income statements for period 1 and 2 under the marginal costing method. [18 Marks] (c) What are the main causes of difference between marginal and absorption profits. [8 Marks] (d) State the situations in which the profit figures calculated under both absorption costing and marginal costing would be the same. [2 marks]

Answer rating: 100% (QA)

a Calculations for Income Statement for Period 1 under Absorption Method Sales Rs 1275000 Cost of Goods Sold Opening stock Rs 16000 Add Production Rs ... View the full answer