C. Jones & Co. have traditionally used an absorption costing approach to valuing stocks in their final accounts. The firm’s accountant wishes to assess the differences, if any, that the use of a marginal approach might have produced.

Opening stock on 1 January 19_3 was 700 units valued at £12 000; this figure is to be used for both methods.

You are asked to:

(a) Draw up the manufacturing and trading accounts for 19_3 and 19-4 adopting each method, and

(b) Use your answer to explain why the profits are different under each method.

Transcribed Image Text:

Fixed factory overhead () Direct labour cost/unit () Direct material cost/unit () Variable overhead/unit () Sales (units) Selling price/unit () Production (units) 19_3 14 000 19_4 16.000 6 7 8 8 4 5 2 200 2 300 25 32 2 400 2 400