Salman Establishment started a business in 2019 producing racing boats. As the accountant of the company, you
Question:
Salman Establishment started a business in 2019 producing racing boats. As the accountant of the company, you have been asked to look at the accounting records and draw up alternative income statements for 2019 and 2020.
| 2019 | 2020 |
Sale price £ | 600 | 650 |
Sales ( units) | 4,000 | 5,000 |
Production ( units) | 4,800 | 4,600 |
| £ | £ |
Costs |
|
|
Factory: Fixed | 590,000 | 610,000 |
Factory: Variables | 485,000 | 350,000 |
Administration: Fixed | 220,000 | 240,000 |
Selling: variable | 185,000 | 245,000 |
Requirements:
(a) Prepare income statements using absorption costing, for each of the years 2019 and 2020. Use an excel sheet to demonstrate your workings.
(b) Prepare income statements using marginal costing, showing clearly your calculation of contribution, for each of the years 2019 and 2020. - Use an excel sheet to demonstrate your workings.
( c ) Explain three methods under absorption costing that managers can use to improve operating income.
(d ) To increase production, a manager may defer maintenance beyond the current period. Briefly explain why many companies use absorption costing for external reporting as well as internal accounting.
( e ) The breakeven points are the same under both variable costing and absorption costing. Do you agree or Disagree? Explain.
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver