Intermediate: Preparation of variable costing and absorption costing profit statements and an explanation of the differences in profits The following data have been extracted from the budgets and standard costs of ABC Limited, a company which manufactures and sells a single product.

Fixed production overhead costs are budgeted at £400 000 per annum. Normal production levels are thought to be 320 000 units per annum.
Budgeted selling and distribution costs are as follows:

You are required

(a) to prepare profit statements for each of the two quarters, in a columnar format, using (i) marginal costing, and (ii) absorption costing; (12 marks)

(b) to reconcile the profits reported for the quarter January-March in your answer to

(a) above;
(3 marks)

(c) to write up the production overhead control account for the quarter to 31 March, using absorption costing principles. Assume that the production overhead costs incurred amounted to £102400 and the actual production was 74000 units; (3 marks)

(d) to state and explain briefly the benefits of using marginal costing as the basis of management reporting.

Transcribed Image Text:

per unit Selling price 45.00 Direct materials cost 10.00 Direct wages cost Variable overhead cost 4.00 2.50