Integrated accounts, profits computation and reconciliation relating to absorption and marginal costing A company manufactures two products (A and B).

In the period just ended production and sales of the two products were:

Raw material purchases (on credit) during the period totalled £631 220. Raw material costs per unit are £7.20 for Product A and £11.60 for Product B.
Direct labour hours worked during the period totalled 73,400 (1 hour per unit of Product A and 1.2 hours per unit of Product B), paid at a basic rate of £8.00 per hour.

3250 overtime hours were worked by direct workers, paid at a premium of 25% over the basic rate. Overtime premiums are treated as indirect production costs. Other indirect labour costs during the period totalled £186 470 and production overhead costs (other than indirect labour) were

£549 630. Production overheads are absorbed at a rate of £10.00 per direct labour hour (including

£6.80 per hour for fixed production overheads).

Any over/under-absorbed balances are transferred to the Profit and Loss Account in the period in which they arise. Non-production overheads totalled £394 700 in the period.

Required:

(a) Prepare the following accounts for the period in the company’s integrated accounting system:

(i) Raw material stock control;

(ii) Production overhead control;

(iii) Finished goods stock control (showing the details of the valuation of closing stocks as a note).

(b) Prepare the Profit and Loss Account for the period, clearly showing sales, production cost of sales and gross profit for each product.
(4 marks)

(c) Calculate, and explain, the difference in the net profit (loss) for the period if the marginal costing method is employed. (4 marks)

Transcribed Image Text:

Production Sales Product A (000 units) 41 38 Product B (000 units) 27 28 The selling prices of the products were 35 and 39 per unit for A and B respectively. Opening stocks were: Raw materials 72 460 Finished goods: Product A 80 640 (3200 units) Product B 102 920 (3100 units)