QUESTION 2

Bolte Manufacturing operations for 2017 are as follows:

$

Per unit:

Sales price 50

Direct material cost 18

Direct wages 4

Variable production overhead 3

Per month:

Fixed production overhead 99 000

Fixed selling expenses 14 000

Fixed administration expenses 26 000

Variable selling expenses is 10% of sales value.

Normal capacity was 11 000 units per month.

January February

Units Units

Sales 10 000 12 000

Production 12 000 10 000

Using the two methods:

A. Compute the unit production cost (4 marks)

B. Determine the value of the closing inventory (7 marks)

C. Prepare the Marginal Income Statement and the Absorption Income Statement for March and April (22 marks)

D. Reconcile the net profits for March and April (3 marks)

E. Comment on the differences of the two systems with respect to:

i. Stock valuations (2 marks)

ii. Period profits (2 marks)