Torwood Limited is planning to manufacture a compound X72 that will be used in the food industry.

The product will be sold for £15.00 per kilo. The company expects the following standards to apply to the production of the compound

The planned production and sales levels for the first 3 months ofthe year ending 31 December 2000 are expected to be:

The production levels in January to March are similar to the production levels that are planned for the other 3-month periods during the forthcoming year. The company had no stocks ofraw materials or finished goods on 1 January 2000.

Required:
You are required to:

(a) Produce a detailed standard cost card for 1 kilo of product X72 using:
(i) absorption costing (ii) marginal costing (6 marks)

(b) Produce a detailed forecast profit and loss account for the three month period ending on 31 March 2000 using;
(i) absorption costing (ii) marginal costing (16 marks)

(c) Produce a statement reconciling the profit calculated in part (b)(i) with that calculated in part (b)(ii)

Transcribed Image Text:

Ingredient M1: 0-25 kilos @ 2.00 per kilo Ingredient M2: 0-75 kilos @ 3.00 per kilo Labour: 0-20 hours @ 4.00 per hour Variable overhead is absorbed @ 6-00 per labour hour Fixed overheads are expected to be 6,600 per annum. They are absorbed on a unit basis and will accrue evenly over the year