Assignment: You have been provided with the information below for the table prod

Question

Assignment:
You have been provided with the information below for the table production line.

A/ Prepare a profit analysis using marginal costing methodology and format assuming sales units are 9000 & production is 12000

B/ Explain why the profit is different between A/ and using total absorption costing (previous exercise)


Starting inventory Nil
Wood 35 per unit
Other materials 2 per unit
Material handling 20 000 estimated costs per year
Direct labor 20 per unit
Line supervisor 40 000 estimated costs per year
Line equipment depreciation 30 000 estimated costs per year
Share of factory rent 50 000 estimated costs per year
Shipping costs 8 per unit
Sales commissions 5 per unit
Share of General & administrative expenses 60 000 estimated costs per year
Share of Marketing & sales expenses 50 000 estimated costs per year
Sales price 110 per unit

Explanation / Answer

The difference is due to Fixed Manufacturing Overheads in Closing Inventories .

This has been reconciled as below :

Variable Costing Unit Product Cost Direct Material 35.00 Other Material 2.00 Direct Labor 20.00 Variable Costing Unit Product Cost 57.00 Variable Costing Cost of Goods Sold Variable Unit Product Cost 57.00 Units Sold 9,000.00 Variable Costing Unit ,Cost Of Goods Sold 513,000.00 Variable Costing Income Statement Sales 990,000.00 Variable Expenses : Variable Costing Unit ,Cost Of Goods Sold (513,000.00) Variable Selling and Administrative Expenses Sales Commisssions (45,000.00) (5 * 9000) Contribution Margin 432,000.00 Fixed Expenses : Manufacturing Material Handling (20,000.00) Line Supervisor (40,000.00) Line Equipment Depreciation (30,000.00) Factory Rent (50,000.00) Fixed Expenses : Selling and Adminstrative (110,000.00) Net Operating Income 182,000.00

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