Question 1

(24 marks,43 minutes)

XL Enterprises planned to launch a new computer storage device aiming the student market in Namibia. The following are budgeted figures for the device.

Direct Material

Direct Labour

Variable Production Overhead

Fixed Production Overhead

Budgeted output

Selling price

Variable selling and administration cost

N$100 per unit N$50 per unit N$80 per unit

N$270 000 I 000 N$350 per unit N$50 per unit

Following the successful testing on the marketability of the product, the product was launched in November 2019. The following levels of activity was recorded for the first two months of operating (November and December 2019).

November Production units 9 000 Sales units I 500

December 10 000

I 500

The actual production costs and selling prices were the same as budgeted for the two months under consideration.

Required

Calculate the standard unit cost of production and the standard gross profit per

Marks 4

12

2

1.1

unit using absorption costing principles (it is the same for each month).

Prepare a profit statement for each month (in columnar format) using: 1.2 1.2.1 Absorption costing

1.2.2 Marginal costing

Reconcile the difference in profit reported by these two methods as calculated

1.3

in (1.2) above.

The general manager of XL Enterprises does not understand why these two

1.4 methods are giving a different profit figure yet they are using the same set of 2

information. Clearly explain to her the reason for this difference in profits. Explain why marginal costing is the preferred method for segmental reporting

1.5

and responsibility accounting.

Explain the difference between a cost center and an investment center as they

2

2 24