Pinafore Ltd manufactures and sells a single product. The budgeted profit statement for this month, which has
Question:
Pinafore Ltd manufactures and sells a single product. The budgeted profit statement for this month, which has been prepared using marginal costing principles, is as follows:
The normal monthly level of production is 25,000 units and stocks are valued at standard cost.
Required
1. Prepare in full a budgeted profit statement for this month using absorption-costing principles. Assume that fixed production overhead costs are absorbed using the normal level of activity.
2. Prepare a statement that reconciles the net profit calculated in (1) with the net profit using marginal costing.
3. Which of the two costing principles (absorption or marginal) is more relevant for short-run decision making, and why?
Step by Step Answer:
Management And Cost Accounting
ISBN: 9781292232669
7th Edition
Authors: Alnoor Bhimani, Srikant M. Datar, Charles T. Horngren, Madhav V. Rajan