Question
Marginal and Absorption Costing Suppose you are a financial advisor of the corporation XXX. You received a task to estimate the profit of the company
Marginal and Absorption Costing
Suppose you are a financial advisor of the corporation "XXX". You received a task to estimate the profit of the company by using two approaches marginal costing and absorption costing.
The corporation XXX produces two products: earphone and computer gaming mouse. The detailed information on these products are given in the table below.
Per unit cost | Earphone, $ | Gaming mouse, $ |
Selling price | 50 | 20 |
Direct materials | 9 | 5 |
Direct labour | 4 | 3 |
Variable overheads | 2 | 1 |
Annual fixed production overheads are budgeted (projected) to be $600 000 for earphone production and $400 000 for gaming mouse production. The managers of the corporation expect to produce 500 000 units of earphones and 1 million gaming mice each year. Overheads are absorbed on a per unit basis. Actual overheads are $800 000 and $700 000 for the earphone and gaming mouse respectively for the year.
Budgeted fixed costs per quarter are $140 000 and $120 000 for the production of earphone and gaming mouse respectively.
Actual sales and production units for the first quarter are given below.
January - March | ||
earphone | Gaming mouse | |
Sales | 120 000 | 80 000 |
Production | 140 000 | 80 000 |
In addition, there is no opening inventory for both products at the beginning of January.
Make income statements of the corporation for the first quarter using:
- Marginal costing
- Absorption costing
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started