Marginal and absorption costing :

Question 1: Security vision manufactures and sells cameras. Business information for per unit is given
below. Prepare income statements for September 2020 using absorption and marginal method. Explain
why the profit differs under both the methods

Selling price $800,

Direct Materials $100

Direct Labor $90

Variable overhead $50

Fixed overhead $160

The fixed production overhead assumes a monthly production of 2000 units and the following monthly
costs are also incurred.

Fixed administrative overheads $80,000

Variable Sales overhead is 10% of sales value

Fixed sales overhead $120,000

During the month of September 2020, a total of 2400 units were produced out of which 1800 units were
sold. There was no stock in hand at the beginning of September.

Question 2: Brooks limited manufactures one product. Following information is available.

Direct Material $3.20 per unit

Direct Labor $2.40 per unit

Selling price $14 per unit

Fixed budget overhead $88,000 per month

Budgeted production 16000 units per month

The below data is for February and March 2021

Actual sales (units) 13000 17000

Actual produced (units) 15000 15000

There was no opening inventory in Feb. The actual fixed overhead cost was same as budgeted cost.
 a. Prepare income statement for Feb and March using marginal costing method

b. Calculate overhead absorption rate per unit

c. Prepare income statement for Feb and March using absorption costing method.

Question 3: Redwood manufacturing Company manufactures furnitures. The following information is

available for first three years of business in USD ($) 2008 2009 2010

Fixed costs 60,000 66,000 70,000

Direct Material cost per unit 15 15 16

Direct Labor cost per unit 8 9 9

Variable overhead per unit 4 6 7

Selling price per unit 40 44 46

Production and sales quantities are as follows:

Production (units) 15,000 12,000 16,000

Sales (units) 12,000 13,000 16,000

Calculate closing stock quantity for 3 years. Prepare income statement using marginal and absorption
costing for 3 years.

Question 4: KC Global Ltd provides the following budgeted information.

Jan 2015 Feb 2015

Production units 10,000 10,000

Sales units 7,000 13,000

Direct material cost per unit in $ 4.50 4.50

Direct Labor cost per unit in $ 6 6

Variable overhead per unit in $ 2.50 2.50

Additional information is: Selling price per unit $17, Budgeted annual production is 120,000 units, Zero
opening stock in Jan 2015, Annual fixed overhead are budgeted at $324,000. Fixed overhead is absorbed
on per unit basis. Calculate forecast income statement for Jan 2015 & Feb 2015 using marginal and
absorption methods.
Question 5: Global limited provides the following budgeted information for the month of January
and February.

Selling price per unit $12, Variable cost per unit $5. There is no opening inventory in January.
Production is expected to be 54000 units for the year.

Particulars January $ February $

Fixed production overheads 9000 9000

Fixed administrative costs 800 800

Units Units

Sales 3600 5400

Production 4500 4500

a. Prepare budgeted profit statement for each month using Marginal costing. Clearly show
opening and closing inventory for each month.

b. Calculate the production overhead absorption rate per unit.

Prepare budgeted profit statement for each month using Absorption costing. Clearly show
opening and closing inventory for each month.