Question 3

Jahmiel Simpson Ltd produces a single product and has a budgeted capacity of 6,000 units monthly. At the start of May 2019, there were 1,300 units of the product in stock. During the month, the company sold one unit of the product for $1,500. Sales for the month amounted to 9,000 units and there were 700 units of the product in store at the end of the month. Administrative and selling overheads for the month were $600,000 and $800,000 respectively. The following information relating to the product was also extracted from the accounting records:

Cost per unit

Details	$
Direct materials	100
Direct labour	120
Variable overheads	80
	300
Fixed production overheads	100
Total	400

Required:

1. Determine the amount of production for May 2020. (2 marks)
2. Prepare profit statement using Marginal Costing techniques for May 2020. (5 marks)
3. Prepare profit statement using Absorption Costing techniques for May 2020. (6 marks)
4. Reconcile the profit results obtained using both product costing methods. (3 marks)
5. State two advantages of marginal costing. (2 marks)
6. State two advantages of absorption costing. (2 marks)