PLEASE I NEED ASSISTANCE ONLY FOR YEAR 2020 Marginal costing method. and Absorption costing method and Check my solutions if they are correct
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My solutions are:
Mary commenced business in January 2019, manufacturing a single product. At the end of 2019 she calculated her profit using the absorption costing method and was pleased with the profits that were realised. However, she recently read that preparation of the income statement according to the marginal costing method would be more beneficial to her. She also learnt that if there are opening or closing inventories, then the profits calculated using the two methods would be different. She forecasted her sales and costs for July to December 2021 and wanted to undertake cost-volume-profit (CVP) analysis since it made use of the marginal costing approach with which she was impressed. QUESTION 1 (20 Marks) REQUIRED Prepare the Income Statement of Mary's Manufacturers the year ended 31 December 2020 using the: 1.1 Marginal costing method. (10 Marks) 12 Absorption costing method. (10 Marks) INFORMATION The following information was extracted from the accounting records of Mary's Manufacturers for the years ended 31 December 2020 and 31 December 2019: INFORMATION The following information was extracted from the accounting records of Mary's Manufacturers for the years ended 31 December 2020 and 31 December 2019: 31 December 2020 31 December 2019 Units R Units R Sales for the year 3 500 ? 3 700 666 000 200 180 4 100 4 000 ? Nil Selling price per unit Production for the year Finished goods at beginning of year Variable manufacturing costs per unit Variable selling and administrative costs per unit Fixed manufacturing costs per year Fixed selling and administrative costs per year 50 45 25 24 45 100 36 000 24 000 25 000 Additional information 1. Mary's Manufacturers uses the FIFO method for the valuation of inventory. The increase in the fixed manufacturing costs is due to a new rental agreement in respect of the factory. 2. R (R Value 666,000 255,300) QUESTION 1 Details 2019 2020 Opening inventory units 0 300 Add: Production units 4000 4100 Less: Sales units 3700 3500 Closing inventory units 300 900 1.1. Marginal Costing Method Mary's Manufacturers INCOME STATEMENT FOR 31 DECEMBER 2019 Sales (3700 x R 180) Less: Variable cost Opening inventory (finished goods) Variable manufacturing costs (4 000 x R 45) Goods available for sale Closing inventory (300 x R 45) Variable cost of goods sold Variable selling and administrative expenses (3700 x R 24) Marginal income Less: Fixed cost Manufacturing cost Selling and administrative cost Net profit Mary's Manufacturers INCOME STATEMENT FOR 31 DECEMBER 2020 Sales (3500 x R 200) Less: Variable cost Opening inventory (300 x R 45) Variable manufacturing costs (4 100 x R 50) Goods available for sale Closing inventory (900 x R 50) Variable cost of goods sold Variable selling and administrative expenses (3500 x R 25) Marginal income Less: Fixed cost Manufacturing cost Selling and administrative cost Net profit R R (R R R R (R (R (R R 180,000 180,000 13,500) 166,500 88,800 410,700 61,000) 36,000) 25,000) 349,700 Value R 700,000 R 261,000 R 13,500 R 205,000 R 218,500 R 45,000 R 173,500 R 87,500 R 439,000 R 69.100 R 45.100 R 24,000 R 369,900 Value 666,000 199,800 1.2.Absorption Costing Method Mary's Manufacturers INCOME STATEMENT FOR 31 DECEMBER 2019 Sales (3700 x R 180) Less: Manufacturing cost of sales Opening inventory Variable manufacturing costs (4 000 x R 45) Fixed manufacturing costs Goods available for sale Closing inventory (300 R 54) (N.B. R 216 000:4 000 = R 54) Gross profit Less: Overheads Variable selling and administrative costs (3 700 x R 24) Fixed selling and administration costs Net profit R R R R R R R R R R R R 180,000 36,000 216,000 16,200 466,200 113,800 88,800 25,000 352,400 Mary's Manufacturers INCOME STATEMENT FOR 31 DECEMBER 2020 Sales (3500 x R 200) Less: Manufacturing cost of sales Opening inventory (300 x R 54) Variable manufacturing costs (4 100 x R 50) Fixed manufacturing costs Goods available for sale Closing inventory (900 XR 76.09) (N.B. R 266 300: 3 500 = R 76.09) Gross profit Less: Overheads Variable selling and administrative expenses (3500 x R 25) Fixed selling and administration costs Net profit R R R R R R R R R R R R Value 700,000 197,819 16,200 205,000 45,100 266,300 68,481 502,181 111,500 87,500 24,000 390,681 |
