Question
QUESTION 4 [25 MARKS] The following budgeted profit statement has been prepared using absorption costing principles. January to June 2017 July to December 2017 BWP'000
QUESTION 4 [25 MARKS]
The following budgeted profit statement has been prepared using absorption costing principles.
January to June 2017 July to December 2017
BWP'000 BWP'000 BWP'000 BWP'000
Sales 540 360
Opening inventory 100
Production costs: 160
Direct materials 108 36
Direct labour 162 54
Overhead 90 30
460 280
Closing Inventory 160 300 80 200
Gross profit 240 160
Production overhead:
(Over)/under absorption (12)
Selling costs 50 12
Distribution costs 45 50
Administration costs 80 40
80
Net profit 163 182
77 (22)
Sales units
Production units 15000 10000
18000 6000
The members of the management team are concerned by the significant change in profitability between the two six-months periods. As a management accountant, you have analysed the data upon which the above budget statement has been produced, with the following results.
- The production overhead cost comprises both a fixed and a variable element. The latter appears to be dependent on the number of units produced. The fixed element of the cost is expected to be incurred at a constant rate throughout the year.
- The selling costs are fixed.
- The distribution cost comprises both fixed and variable elements. The latter appears to be dependent on the number of units sold. The fixed element of the sot is expected to be incurred at a constant rate throughout the year.
- The administration costs are fixed.
Required:
Present the above budgeted profit statement in marginal costing format. (25 marks)
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