QUESTION TWO

The following information is available for a firm producing and selling a single product:

Budgeted costs (at normal activity)

(Sh.'000')

Direct materials and labour

264

Variable production overhead

48

Fixed production overhead

144

Variable selling and administration overhead

24

Fixed selling and administration overhead

96

The overhead absorption rates are based upon normal activity of 240,000 units per

period. During the period just ended 260,000 units of product were produced, and 230,000 units were

sold at Sh.3 per unit. At the beginning of the period 40,000 units were in stock. These were valued at the budgeted costs shown above. Actual costs incurred were as per budget.

Required:

1. Calculate the fixed production overhead absorbed during the period, and the extent of any under/over absorption. For both of these calculations you should use absorption costing. (8 marks)
2. Calculate profits for the period using absorption costing and marginal costing respectively. (12 marks)
3. Reconcile the profit figures which you calculated in (ii) above. (5 marks)