F2 Management In Accounting Sir Ahmed Shafi

Absorption and Marginal costing

1) The following data is provided for ABC Ltd:

Period1Period2 Period 3 Period 4

Production Liters) 60000 70000 55000 65000
Sales(liters) 60000 55000 65000 75000
Opening stock (liters) ------ ---- 15000 5000
Closing stock (liters) ------- 15000 5000 ----
The financial data is as follows:
Direct Material £2.5
Direct Labor £3
Production Overhead £6
Total Cost £ 11.50
Selling price is E18/liter

Admin over heads are fixed at £100,000/period, half of the production overheads are also fixed.
Required: Profit and loss account for all four periods based on absorption as well as marginal
costing.

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2) The following data is taken from the records of J&J Pvt. Ltd:
Period1 Period2 Period3
Production (kgs) 30000 38000 27000
Sales (kgs) 30000 27000 38000
Opening (kgs) ---- ------ 11000
Closing (kgs) ---- ------- -------

The following data relates to normal activity level:

Direct Material £1.5

Direct Labor £1
Production overheads£3
Total cost £5.5

Selling price is £9/kg

Admin overheads are fixed at £25000 per period and one third of production overheads are fixed.
Required:
Profit and loss account for all 3 periods based on absorption as well as marginal costing

3) When opening stocks were 1000 units and closing stocks were 1900 units, a firm had
a profit of £44000 under marginal costing .If fixed overhead is £3/unit, calculate the
profit under absorption costing.

4) When opening stocks were 6000 units and closing stocks was 5500 units, a firm had
a profit of E69000 using marginal costing. If fixed overhead is £4/unit, calculate
profit.

5) When opening stocks were 4000 units and closing stocks was 4800 units, a firm had
a profit of £39000 using absorption costing. If fixed overhead rate is £4/unit,
calculate profit under marginal costing.

6) When opening stocks were 1100 units and closing stock was 800 units, a firm had a
profit of £28000 using absorption costing. If fixed overhead rate is £2.5/unit,
Calculate profit under marginal costing.

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7) In a period a firm had a profit of £77000 using absorption costing and £70000 using
marginal costing. If opening stock was 1900 units and closing stock was 2800 units,
what is the fixed overhead rate per unit?

8) A firm budgets its overheads to be £100, 000. In a Period the firm had a profit of
£36000 using absorption costing and £44000 using marginal costing. If opening stock
was 3100 units and closing stock was 2800 units, what is the budgeted activity level?

9) A firm has a normal activity level of 30000 units. In a period the firm has a profit of
£49000 using absorption costing and £45000 using marginal costing. If opening stock
was 2700 units and closing stock was 3800 units, what were the budgeted
overheads?

Marginal And Absorption costing

1) The actual production overhead expenditure of Alpine Ltd was E176500.It actual activity
and the predetermined overhead absorption rates were as follows:
Machine A Machine B Machine C
Direct Labor Hours 8200 6500 21900
Machine usage Hours 7300 18700 ---
Predetermined OH rate £7.94/machine hr. £3.5/machine hr. £2.24/lab hr.
Calculate the under or over absorption of overheads?

2) When opening stocks were 8500 litres and closing stock £6750 litres, a company
reported a profit of £62100 using, marginal costing. Assuming that the fixed overhead
absorption rate was £3 per litre, what would be the profit using absorption costing?

3) The overhead absorption rate for product Y is £10 per machine hour. Each unit of
productrequires five machine hours. Stock of product Y on 1.1.X1 was 150 units on
31.12,X1 it was 100 units. What is the difference in profit b/w results reported using
absorption and results reported using absorption and results reported using absorption
and results reporting marginal costing?

A) The absorption costing profit would be £2500 less

B) The absorption costing profit would be £2500 greater
C) The absorption costing profit would be £500 lesser
D) The absorption costing profit would be £500 greater

4) A new product has a direct material cost £5.50. A direct labor cost £2, and a fixed
overhead apportionment of £3.50, Production during the first month was 23000 units
while sales were 21000 units. Calculate the stock valuation under both marginal and
absorption costing?

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5) In a period opening stock were 12600 units and closing stocks were 14100 units. The
profit based on marginal costing was E50400 and profit using absorption costing was
£60150. Calculate the fixed overhead absorption rate per unit?

6) When opening stocks were 8500 liters and closing stock 7100 liters, ABC Ltd had a
profit of £61000 using marginal costing. Assuming that fixed overhead absorption rate
was £4 per liter, what would be the profit using absorption costing?

7) ABC Limited produces a single product and currently uses absorption costing for its
internal management accounts report. The fixed production overhead absorption rate
is £20 per unit. Opening stocks for the year were 100 units and closing stocks were 50
units. The company’s management accountant is considering switching to marginal
costing as the stock valuation basis. If marginal costing is used, the management
accounting profit, compared with the profit using the absorption method would then
be.

A) 1000 lower
B) 2000 higher
C) 2000 lower
D) 1000 higher

8) Profits under absorption costing were £101500 whilst under marginal costing the profit
was £95000. Given that the fixed overhead are absorbed at £8 per unit and that 2250
units are held in closing stocks. How many units of opening stocks were there?

9) Profits under marginal costing were £56800 but under absorption costing were only
£55000. If fixed overheads are absorbed at £2 per unit and opening stock is 1500 units,
what is closing stock?

10) Channel 6 plc recorded a profit under marginal costing of £3500. Over the period
stocks increased by 50 units. It wishes to restate its profit using absorption costing and
establishes a pre-determined overhead absorption rate of e4 per labor hour. Each unit
uses 2 hours labor. What is the restated profit?

11) Given the following:

Direct Material £ 20
Direct Labor £40
Production OH (V) £10
Production OH (F) £5
Sales(V) £ 5
Sales(F) £ 10
Total £ 90
What is the marginal cost?

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12) A new company sets up to manufacture luxury and standard items. The relate cost of
each are

Luxury Standard

Direct Material £ 16 £12

Direct Labor £ 21 £9
Variable production overhead £10 £8

Direct labor is paid £6 per hour. Fixed costs were £120400 in total recovered on the basis of direct
labor hour.

Production in the first period which agreed to budget 3500 luxury and 3300 standard units. There
are 290 luxury and 570 standard items in the stock at the end of the period. Calculate the value of
stock under marginal and absorption.

STANDARD LUXURY

Marginal Absorption Marginal Absorption

A) £16530 £22515 £13630 £20735

B) £16530 £13630 £22515 £20735
C) £20735 £13630 £ 22515 £16530
D £22515 £16530 £20735 £13630

13) A company produces a single product for which cost and selling price details are as follows:

Selling price £ 28/unit

direct material £ 10/unit
Direct Labor £4/unit
Variable overhead £ 2/unit
Fixed overhead £5/unit

Last period 8000 units were produced and 8500 units were sold. The opening stock was 3000 units
and profit reported using marginal costing was £60000. The profit reported using absorption
costing will be:

A) 47500
B) 57500
C) 59500
D) 62500

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14) A company manufactures a single product. Production and sales quantities for a period were:

ProductionSales

Budget 100000 units 102000 units

Actual 97000 unit’s 96000 units

The fixed production overhead absorption rate is £1.40 per unit. If marginal costing had been used
instead of absorption costing how the profit would for the period have differed?

A) 1400 less using marginal costing

B) 1400 more using marginal costing
C) 4200 less using marginal costing
D) 4200 more using marginal costing

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