Question 1

(Total: 20 marks)

Jasmin Bhds financial year is from January to December. Standard (estimated) costs were established in January, assuming a normal production volume of 160,000 units, However, the company produced only 140,000 units of product and sold only 100,000 units at a selling price of RM180 per unit during the current year. Variable costs totaled RM7,000,000, of which 60% were manufacturing and 40% were selling. Fixed costs totaled RM11,200,000, of which 50% were manufacturing and 50% were selling. There were no raw materials or work in progress inventories at the beginning and end of the year. Actual input prices per unit of product and actual input quantities per unit of product were equal to standard.

Required:

a) Calculate the cost of goods sold at standard cost, using absorption costing (excluding standard cost variances).

b) Calculate the cost that would be assigned to ending inventory using direct costing.

c) Calculate the factory overhead volume variance for the year.

d) Calculate the operating income using direct costing.

(7 marks)

e) COVID 19 has affected all aspects of life as we know it. In a report from Oliver Wyman, a firm of management consultants, depending on the severity to the manufacturing company, these companies could face 60-90 percent losses. Revenue generation and cost control has now taken centerstage. Discuss and detail strategies based on marginal costing which companies can put in place to generate revenue and control costs. (13 marks)