Shah Ltd (Shah) manufactures a single product, the Choco. The budgeted sales price and production cost per unit of the Choco is as follows:

	£
Selling price	360
Variable materials	50
Variable labour	40
Variable production overheads	15
Fixed production overheads	10

The budgeted selling, distribution and administration costs are as follows:

Fixed £38,400 per annum

Variable £2 per unit

The budgeted and actual production for the month of June was 600 units. There was opening inventory at the start of June of 15 units and closing inventory at the end of June of 20 units. Budgeted fixed costs are incurred evenly per month.

Actual costs and the selling price were as budgeted in June except for the variable selling, distribution and administration costs, which were 10% higher than budgeted, and actual fixed production overheads which were £6,600.

Requirement

Calculate the profit or loss for June using both absorption costing and marginal costing.

Enter costs as negative values.

	Absorption				Marginal
	£		£		£		£
Sales
Variable production costs
Fixed production costs absorbed
Opening inventory
Closing inventory
Production cost of sales
Under-/over- absorption
Variable selling, administration and distribution
Fixed selling, administration and distribution
Fixed production costs
Profit/loss

Shah plans to introduce a new product, the Choco Special, a deluxe version of the Choco. The budgeted total marginal cost for the Choco Special is £420 per unit and £40 per unit for fixed overheads. In order to set a selling price Shah plans to use a mark up of 25% on the absorption cost.

Requirements

At the end of the first month of production of the Choco Special there is a closing inventory. Will the profits for the Choco Special calculated under marginal costing be higher than, lower than or the same as those calculated under absorption costing?

Use the drop down to select from:

Higher

Lower

Same

Calculate the % margin for the Choco Special using the planned selling price.

%