Task 3:

Prepare the following planned values:

a. Contribution and contribution / sales ratio (for each product and in total) and the gross profit

(in total only see note) 7 Marks

b. Prepare a reconciliation to explain the difference between the total gross profits established using an absorption costing system (task 2 d.) and a marginal costing system (task 3 a.) 7 Marks

Note to task 3 a. & b.:

The requirement of task 3 should be established using a marginal costing system where:

• All direct costs are classified as variable
• All indirect production overheads are classified as fixed

The total task 3 mark above, includes marks allocated to short descriptive notes to workings

(<=100 words).

These notes should be short explanatory notes that will serve to define the terminology used and explain the workings (and results) to a colleague who does not work in the finance office.

Meryl Scott, the company sales manager has commented that product B is not performing well and the company profits would increase if this product was removed from the range.

Booklet part 3

Task:

3 a

Parker Ltd Contribution and C/S ratio (Planned December 2023 To max 4 marks)

Contributions and profits	Order A	Order B	Order C
Selling price
Less variable / prime cost per unit
= Unit contribution:
C/S ratio:				Total
x Units sold
= Total contribution earned:
		Less total fixed costs:
	Gross profit (marginal basis):

Note to workings (Gross profits marginal system / observations To max 3 marks):

Task:

3 b.

Parker Ltd Reconciliation of profits (To max 4 marks)

	Difference in profits:
	Gross profit (absorption system)
	Gross profit (marginal system)
	Difference (to be reconciled)
Reconciliation:	Order A	Order B	Order C
Total overhead
Total production (units)
= Overhead per unit				Total (as above)
X closing inventory (units)
= Overhead held in inventory:

Note to workings (Reconciliation of profits / explanation To max 3 marks):