A company manufactures and sells a single product. Budgeted data per unit of the product is: R Selling Price 8.50 Variable Cost* 3.70 Fixed Production overhead 2.90 *All variable costs are manufacturing i.e there are no non-manufacturing variable costs. The above fixed production overhead absorption rate is based on budgeted production of 12,000 units per period. Budgeted non-production overhead (all fixed) is R16, 800 per period. Actual sales and production for two periods has been: Period 1 Period 2 Sales 11 600 units 12 400 units Production 12 000 units 12 300 units There was no stock at the start of Period 1. The selling price, unit variable costs and total fixed costs were as per budget in both periods. REQUIRED 1.1 Prepare statements of Comprehensive income for both periods (ie period 1 & Period 2), using absorption costing, showing the actual results for each of the two periods. The company wishes to compare the results reported in (1.1) above with those that would be reported using marginal costing. 1.2 Prepare the statement of comprehensive income for periods (ie period 1 & Period 2), using marginal costing, showing the actual results for each of the two periods. 1.3 Explain fully why the profits reported in period 1 differ when profit is calculated using absorption costing and marginal costing. Calculations are required to support your explanation.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
A company manufactures and sells a single product. Budgeted data per unit of the product is:
|
|
R |
|
Selling Price |
8.50 |
|
Variable Cost* |
3.70 |
|
Fixed Production overhead |
2.90 |
*All variable
The above fixed production overhead absorption rate is based on budgeted production of 12,000 units per period. Budgeted non-production overhead (all fixed) is R16, 800 per period.
Actual sales and production for two periods has been:
|
|
Period 1 |
Period 2 |
|
Sales |
11 600 units |
12 400 units |
|
Production |
12 000 units |
12 300 units |
There was no stock at the start of Period 1. The selling price, unit variable costs and total fixed costs were as per budget in both periods.
REQUIRED
1.1 Prepare statements of Comprehensive income for both periods (ie period 1 & Period 2), using absorption costing, showing the actual results for each of the two periods.
The company wishes to compare the results reported in (1.1) above with those that would be reported using marginal costing.
1.2 Prepare the statement of comprehensive income for periods (ie period 1 & Period 2), using marginal costing,
showing the actual results for each of the two periods.
1.3 Explain fully why the profits reported in period 1 differ when profit is calculated using absorption costing and marginal costing. Calculations are required to support your explanation.
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