Question 3 (24 marks) The managers of Dax Enterprise currently use a marginal costing system but...
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Question 3 (24 marks) The managers of Dax Enterprise currently use a marginal costing system but after participating in a workshop they want to explore the benefits of absorption costing. Below are data relevant to the year ended December 31, 2020 and 2021: 2020 2021 Selling price per unit Labour cost per unit Direct material per unit Direct expense per unit Variable overheads per unit Fixed overheads (actual) Variable selling per unit Actual production (units) Actual sales (units) Selling price per unit 30.00 3.75 30.00 3.75 7.50 7.50 2.00 2.00 1.75 1.75 93,750.00 0.75 19.500.00 112,500.00 0.75 21,250.00 22,500.00 30.00 25.250.00 30.00 On January 1, 2020, the company had 7,500 units valued at a cost of $187,500. For both periods the entity budgeted fixed overhead to be S150,000 and budgeted production of 15,000 units. Overheads are absorbed on a per unit basis currently. Required: (a) Prepare the marginal costing income statement for the years ending December 31, 2020 and December 31, 2021. (5 marks) (b) Prepare the absorption costing income statement for the years ended December 31, 2020 and December 31, 2021. (15 marks) (c) Prepare a statement of reconciliation of the profits for both years. (5 marks) (d) Outline two advantages and two disadvantages (each) for both marginal and absorption costing. (2 marks) Question 3 (24 marks) The managers of Dax Enterprise currently use a marginal costing system but after participating in a workshop they want to explore the benefits of absorption costing. Below are data relevant to the year ended December 31, 2020 and 2021: 2020 2021 Selling price per unit Labour cost per unit Direct material per unit Direct expense per unit Variable overheads per unit Fixed overheads (actual) Variable selling per unit Actual production (units) Actual sales (units) Selling price per unit 30.00 3.75 30.00 3.75 7.50 7.50 2.00 2.00 1.75 1.75 93,750.00 0.75 19.500.00 112,500.00 0.75 21,250.00 22,500.00 30.00 25.250.00 30.00 On January 1, 2020, the company had 7,500 units valued at a cost of $187,500. For both periods the entity budgeted fixed overhead to be S150,000 and budgeted production of 15,000 units. Overheads are absorbed on a per unit basis currently. Required: (a) Prepare the marginal costing income statement for the years ending December 31, 2020 and December 31, 2021. (5 marks) (b) Prepare the absorption costing income statement for the years ended December 31, 2020 and December 31, 2021. (15 marks) (c) Prepare a statement of reconciliation of the profits for both years. (5 marks) (d) Outline two advantages and two disadvantages (each) for both marginal and absorption costing. (2 marks)
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Working notes Product cost Marginal costing 2020 2021 Direct materials 750 750 Direct labor Direct e... View the full answer
Related Book For
Methods of IT Project Management
ISBN: 978-1557536631
2nd edition
Authors: Jeffrey Brewer, Kevin Dittman
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