Variable and Absorption Costing

PAPER – 5 : ADVANCED MANAGEMENT ACCOUNTING QUESTIONS Marginal Costing Vs. Absorption Costing 1. During the current period, ABC Ltd sold 60,000 units of product at Rs. 30 per unit. At the beginning for the period, there were 10,000 units in inventory and ABC Ltd manufactured 50,000 units during the period. The manufacturing costs and selling and administrative expenses were as follows: Total cost Rs. Beginning inventory: Direct materials Direct labour Variable factory overhead Fixed factory overhead Total Current period costs: Direct materials Direct labour Variable factory overhead Fixed factory overhead Total Selling and administrative expenses: Variable Fixed Total Instructions: 1. 2. 3. Prepare an income statement based on the variable costing concept. Prepare an income statement based on the absorption costing concept. Give the reason for the difference in the amount of income from operations in 1 and 2. 65,000 45,000 1,10,000 3,50,000 8,10,000 90,000 1,00,000 13,50,000 50,000 50,000 50,000 50,000 7.00 16.20 1.80 2.00 27.00 67,000 1,55,000 18,000 20,000 2,60,000 10,000 10,000 10,000 10,000 6.70 15.50 1.80 2.00 26.00 Number of units Unit cost Rs.

Profitability Analysis, Flexible Budget and Marginal Costing 2. A budgeted profit statement of a company working at 75% capacity is provided to you

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below, Sales Less: 9,000 units at Rs. 32 Direct materials Direct wages Production overhead: fixed variable Gross profit Less: Administration, selling and distribution costs: fixed varying with sales volume Net profit You are required to: (a) Calculate the breakeven point in units and in value. (b) It has been estimated that: (i) if the selling price per unit were reduced to Rs. 28, the increased demand would utilise 90% of the company's capacity without any additional advertising expenditure, and 36,000 27,000 63,000 39,000 42,000 18,000 1,86,000 1,02,000 Rs. 54,000 72,000 Rs. 2,88,000

(ii) to attract sufficient demand to utilise full capacity would require a