A manufacturing company with a single product has the following sales and production results over three financial periods:

The selling price per unit has remained at £10, and direct material and direct labour costs per unit at £5. All manufacturing overheads are absorbed into product cost at predetermined rates per unit of output. Any under/over absorbed balances are transferred to profit and loss in the period in which they arise. Variable manufacturing overhead absorption was predetermined at a rate of £1 per unit in each period. Fixed manufacturing overheads were expected to be £180,000 per period. Normal capacity is 60,000 units of output per period.
Manufacturing overheads actually incurred were as follows:

Assume that no further overheads are incurred (i.e. other than manufacturing overheads).
Required:

(a) Calculate the expected break even point per period.

(b) Calculate the profit/loss that arose in each of the three periods.

(c) Reconcile your answers to

(a) and

(b) above, clearly demonstrating, explaining fully the reasons for, and commenting briefly upon, any differences encountered.

Transcribed Image Text:

Sales Production Period 1 000 units 50 70 Period 2 000 units 60 40 Period 3 000 units 40 60