R limited is considering its plans for the year ending 31 December. It makes and sells...

 

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R limited is considering its plans for the year ending 31 December. It makes and sells a single product which has budgeted costs and selling price as follows: Category Selling price Direct materials Direct labour Production overhead: Variable Fixed Selling overhead: Variable Fixed i) ii) Administration overhead Fixed Category Sales Production January units 7,000 8,750 Assume that there will be no stocks held on 1 January. Per unit 450 110 80 Fixed overhead costs per unit are based on a normal annual activity of 96,000 units. These costs are expected to be incurred at a constant rate throughout the year. Activity level during January and February are expected to be: 40 30 50 20 30 February units 8,750 7,750 Required 1) Prepare in columnar format, profit statement for each of the two months of January and February using absorption costing; variable costing. 2) Reconcile and explain the reason for any differences between the marginal and absorption profits for each month which you have calculated in your answer under 1). 3) Based upon marginal costing, calculate the following: The annual breakeven sales value i) ii) The activity level, in units, which will yield an annual profit of 1,228,000. 4) Explain three fundamental assumptions underpinning single product break-even analysis. R limited is considering its plans for the year ending 31 December. It makes and sells a single product which has budgeted costs and selling price as follows: Category Selling price Direct materials Direct labour Production overhead: Variable Fixed Selling overhead: Variable Fixed i) ii) Administration overhead Fixed Category Sales Production January units 7,000 8,750 Assume that there will be no stocks held on 1 January. Per unit 450 110 80 Fixed overhead costs per unit are based on a normal annual activity of 96,000 units. These costs are expected to be incurred at a constant rate throughout the year. Activity level during January and February are expected to be: 40 30 50 20 30 February units 8,750 7,750 Required 1) Prepare in columnar format, profit statement for each of the two months of January and February using absorption costing; variable costing. 2) Reconcile and explain the reason for any differences between the marginal and absorption profits for each month which you have calculated in your answer under 1). 3) Based upon marginal costing, calculate the following: The annual breakeven sales value i) ii) The activity level, in units, which will yield an annual profit of 1,228,000. 4) Explain three fundamental assumptions underpinning single product break-even analysis.

Answer rating: 100% (QA)

1 Prepare profit statements for January and February using absorption costing and variable costing Absorption Costing This method allocates both variable and fixed manufacturing costs to each unit of ... View the full answer