Assignment 1 Variable & Absorption Costing Accounting for decision making Question 1 Kelly Ltd.

has the following cost structure: Variable Costs Production (manufacturing) costs per unit $ 6 / unit Non-production (selling & administrative costs) $ 2500 Fixed Costs Production (manufacturing overhead costs) $ 6000 Non-production (selling & administrative costs) $ 4000 Additional Information: 1. 2. 3. 4. 1,000 units were produced during the year. Closing stock 300 units Assume zero beginning inventories. Selling price is $30 per unit.

Required: A. Using the above information, prepare an income statement using the variable costing method. B. Repeat (A) using the absorption costing method. Question 2 A company produced 25,000 units (normal capacity) of product during the first quarter of the year in which 20,000 units were sold at $35 per unit. The costs of production were as follows: Direct Material Direct Labor Production Overhead (fixed) Production Overhead (variable) $60,000 $60,000 $120,000 $96,000

Marketing and admin overheads for the quarter totaled $70,000 in which all were fixed. Required:

A. Calculate the net profit under variable costing. B. Calculate the net profit under absorption costing. Question 3 The budget for Blight s first month of trading, producing and selling boats was as follows: $000 45 30 75 (25) 50 5 25 80 10 90

Variable production costs of boats Fixed production costs Production costs of 750 boats Closing inventory of 250 boats Production costs of 500 boats sold Variable selling costs Fixed selling costs Profit Sales Revenue

The budget has been produced using an absorption costing system. Required: Calculate the budgeted profit under variable costing system.