Q4

Solution
ii)
Marginal Costing
Units Per U
Sales 6000 £

Less : Vari
of sa
Variable cos 6800 £12
Less: Closin 800 £12
6000
other variab 6000 £3

Contributio

Less : All
Production
Administrati
Selling

Total Fixed

Net Profit

iii)
Contrast with marginal- fixed overhead written off in period.
Dif £91,100 less £88,700 = £2,400

This is equal to the fixed overhead absorbed (and delayed) into closing stock 800 @£3 = £2,400
Difference in profits accounted for by treatment of fixed production overheads. Fixed production overhead absorbed into
and closing stock valuations- effectively delayed till future accounting period so a larger profit reported under absorption.

Marginal costing
Units £ £
Unit costs = Direct costs + Va
Sales
COS
Opening stock
Production
VC
Closing stock
COS
Other variable costs:
Adjusted COS
Contribution
 Less Fixed costs:
Fixed production overheads:
Fixed non production OH

Profit (net)
 Per Unit Total
£35 £210,000

Less : Production
Cost of Sales
£12.00 £81,600 Total Production Cost
£12.00 £9,600 Less : Closing Stock
£72,000
£3.80 £22,800

£115,200 Gross profit

Less : Non Production Costs

£20,400 Fixed administration costs
£4,500 Variable administration costs
£1,600 Fixed selling costs
Variable selling costs
£26,500 Total Non Production Costs

£88,700 Net Profit

uction overhead absorbed into Cost of Sales

fit reported under absorption. marks awarded on relevant points max 3 marks

Unit costs = Direct costs + Variable production overheads

i)
Absorption Costing
Units Per Unit Total
6000 £35 £210,000

6800 £15.00 £102,000

800 £15.00 £12,000
6000 £90,000

£120,000

£4,500
14400
£1,600
8400
£28,900

£91,100
 Workings
Marginal costing budget Unit cost = Direct costs + variable production over
£ £ 4+6+2+3 = £15
Sales 210000 Sales = selling price X units sold
Minus COS
Opening inv VC = Material + Labour
Production 4 + 6 = 10
VC 81600 FC = 3
FC 20400
Closing 12000 Closing stock = production - sales = 800
COS 90000

Adjusting for over / under absorption

Adjusted COS
90000
Gross profit 120000 0
Less non-prod overheads
Fixed admin per month 4500
Fixed selling costs 1600
Variable selling costs 8400
Variable admin costs 14400
28900

Net profit 91100

i)
Absorption Costing
Units Per Unit Total

Less : Production
Cost of Sales
Opening stock
Total Production Cost
FC and VC
Less : Closing Stock
Adjusted Over / Under a
Adjusted COS
Gross profit £120,000

Less : Non Production Costs

Fixed administration costs
Variable administration costs
Fixed selling costs
Variable selling costs
Total Non Production Costs

Net Profit £91,100

sts + variable production overheads + fixed production overheads

uction - sales = 800

 Marginal costing
Units £ £
Unit costs = Direct costs + Variable produc
Sales 6000 £ 210,000.00 4+6+2 = 12
COS
Opening stock
Production
VC 6800 £ 81,600.00
Closing stock 800 £ 9,600.00
COS £ 72,000.00
Other variable costs: 1.40 + 2.40 £ 22,800.00
Adjusted COS £ 94,800.00
Contribution £ 115,200.00

Less Fixed costs:

Fixed production overheads: 68000 x 3 £ 20,400.00
Fixed non production OH 4500+1600 £ 6,100.00
£ 26,500.00
Profit (net) £ 88,700.00
= Direct costs + Variable production overheads
 Marginal costing budget
£ £
Sales 11250000
Minus COS
Opening inv 711000
Production
VC 3120000
FC 672000
Closing 948000
COS 3555000

Adjusting for over / under absorption

UnderAbsorbed Adjusted COS -118000
3673000
Gross profit 7577000
Less non-prod overheads
Fixed admin per mon 930000
Fixed selling costs
Variable selling costs
Variable admin costs
SALES comission 450000

Net profit 6197000

Workings
Unit cost = Direct costs + variable production overheads + fixed production overheads
32+6+27 +700/50 £79
Sales = selling price X units sold

VC = Material + Labour
4 + 6 = 10
FC = 3
actual production = sales -opening + CLOSING
Closing stock = production - sales = 800
 Marginal costing
Units £ £

Sales £ 11,250,000.00
COS
Opening stock 9000 £ 585,000.00
Production
VC 48000 £ 3,120,000.00
Closing stock 12000 £ 780,000.00
COS £ 2,925,000.00
Other variable costs:
Adjusted COS £ 2,925,000.00
Contribution £ 8,325,000.00

Less Fixed costs:

Fixed production overheads: £ 790,000.00
Fixed non production OH £ 930,000.00
Sales comission £ 450,000.00
£ 2,170,000.00
Profit (net) £ 6,155,000.00
Unit costs = Direct costs + Variable production overheads
79