Planters Ltd. is a manufacturing company that makes two products; Plotex and Ploten. As part of the Accounting department, Management has asked your team to prepare costing statements for the month of July. The following information is presented to you to assist in the preparation of the relevant statements:

i.The monthly overheads for the company are as follows:

Production foremen salaries

1,500,000

Rent

2,000,000

Insurance

3,000,000

Depreciation of Factory Machinery

200,000

Depreciation of Office Equipment

250,000

Factory Utility costs

1,900,000

Warehouse supervisor salaries

320,000

Salary of truck drivers

150,000

Salesmen Salaries

210,000

Office expenses

70,000

Depreciation of Delivery Vans

100,000

Sales Promotion expenses

15,000

Fees to advertising agency

38,000

Salary of security guard in finished goods warehouse

120,000

Carriage Outwards

50,000

Depreciation: Showrooms

12,000

Rent and Insurance costs are apportioned to each department as follows:

Departments:

Rent

Insurance

Production

60%

70%

Administrative

20%

10%

Distribution

5%

10%

Selling Costs

15%

10%

Note: Factory Utility Costs is semi-variable. The company uses the least squares method to separate costs into its variable and fixed components based on costs and activity levels over a five (5) month period.

Months

Factory Utility Costs

Production units (Both Products)

February

1,675,000

15,000

March

1,450,000

10,000

April

1,540,000

12,000

May

1,765,000

17,000

June

1,585,000

13,000

ii.The company uses a standard cost card for which the information below has been provided:

Ploten and Plotex use the same direct material which is expected to cost $100 per kilogram. Plotex uses five (5) kilograms and Ploten uses four (4) kilograms.

Direct labour is expected to cost $300 per hour. Plotex requires two (2) hours and Ploten requires three (3) hours.

Fixed Production overheads are apportioned based on the Direct Labour Cost per unit for each product and then absorbed on a per unit basis.

iii.Stock, Output and Sales data for the month of July are as follows:

Details

Plotex

Ploten

Units

Units

Sales

12,100

8,950

Production

12,000

9,000

Opening stock

150

100

$

$

Selling price per unit

$2,000

$3,000

Note: The Company is expected to produce 10,000 units of each product for the month.

iv.Actual Results for Plotex for July are as follows:

Direct raw materials purchased and used; 48,000 kgs at $105 per kg.

Direct Labour for 36,000 hours at $290 per hour.

v.Actual Results for Ploten for July are as follows:

Direct raw materials purchased and used; 45,000 kgs at $105 per kg.

Direct Labour for 31,500 hours at $290 per hour.

Required:

1.Classify the overhead costs into the following categories:

a.Production/Factory Overheads

b.Administrative Overheads

c.Distribution Overheads

d.Selling Overheads

(13 marks)

2.As it relates to Factory Utility Costs, use the least squares method to find:

a.Variable cost per unit

b.The total fixed cost

(9.5 marks)

3. standard cost card for both products showing the Marginal Cost per unit

and the Full Cost per unit. (6 marks)

4.Calculate the Closing stock for both products. (4 marks)

5. Marginal Costing Statement for the month. (12 marks)

6. Absorption Costing Statement for the month. (16.5 marks)

7.Reconcile the profit as per Absorption Costing Statement with the

profit as per Marginal Costing Statement. (4 marks)

8.For both products, calculate the following variances:

a.Direct Material Price Variance

b.Direct Material Usage Variance

c.Direct Labour Rate Variance

d.Direct Labour Efficiency Variance

(16 marks)

9.Suggest two (2) possible reasons for each of the variances you calculated. (4 marks)

10.Reconcile the Profit as per Marginal Costing Statement with the Actual

Profit (based on results calculated from part 5). (3 marks)

11.Reconcile the Profit as per Absorption Costing Statement with the Actual

Profit (based on results calculated from part 6) (4 marks)

12.Determine the break-even points and margin of safety in (units and sales revenue)

for both Plotex and Ploten.(4 marks)

13.Using the results calculated in activity 12 explain break-even point. (2 marks)

14.Define margin of safety and its impact on the amount of goods produced. (2marks)

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