Discussion Question 1(CLO 3)

Jule Ltd makes and sells two products, Tam and Lam. The following information is available for:

Tam

Lam

Production (units)

9,000

7,000

Sales (units)

8,000

5,500

Opening stock (units)

500

400

Budgeted capacity (units)

10,000

6,000

Financial Data:

$

$

Unit selling price

200

160

Unit cost:

Direct materials

45

5

Direct labour

40

15

Variable production overheads

10

15

95

35

Fixed production overheads

40

30

Fixed administration overheads were $500,000 and Fixed selling overheads were $400,000.

As the Cost Accountant you have been asked to do the following:

a.Prepare an income statement based on marginal costing principles.

b.Prepare an income statement based on absorption costing principles.

c.Management is planning on launching a marketing campaign to increase the sale of Tam. They believe that the higher selling price of Tam means that it will generate more revenue and profit than Lam. Advise management on the product they should focus on increasing sales for.