Question 8.1 A company manufactures a single product with the following variable costs per unit:

Direct materials £6.00 Direct labour £7.50 Manufacturing overheads £2.40 The selling price of the product is £35.00 per unit. Fixed manufacturing costs are expected to be £1 240 000 for the period. Fixed non-manufacturing costs are expected to be £765 000. Fixed manufacturing costs can be analysed as follows:

Production depts Maintenance Stores 1 2 dept. dept.

360 000 470 000 240 000 170 000 Stores department costs are related to materials issued. Issues are as follows:

Production dept. 1 35%

Production dept. 2 50%

Maintenance dept. 15%

40 per cent of the maintenance department costs are labour-related and the remaining 60 per cent are machine-related. Normal production department activity is:

Direct labour Machine Production

(hours) (hours) (units)

Dept. 1 90 000 3600 150 000 Dept. 2 120 000 3400 150 000 Fixed manufacturing overheads are absorbed on a per unit of production basis for each production department, based on normal activity.
Prepare a profit statement for the period using the full cost absorption costing system as described above, and showing each element of cost separately.
Costs for the period were as per expectation, except for additional expenditure of £20 000 on fixed manufacturing overheads in production department 1. Production and sales were 146 000 and 144 000 respectively for the period.
Prepare a profit statement for the period using marginal costing principles instead.