ASSIGNMENT 1
A company sells a single product at a price of N14 per
unit. Variable manufacturing costs of the product are N6.40 per unit. Fixed
manufacturing overheads which are absorbed into the cost of production at a
unit rate (based on normal activity of 20,000 units per period) are N92,000 per
period. Any over or under absorbed fixed manufacturing overhead balances are
transferred to the profit or loss account at the end of each period in order to
establish the manufacturing profit.
Sales and production (in units) for the two periods
are as follows:
Period
1 Period 2
Sales 15,000 22,000
Production 18,000 21,000
The manufacturing profit in period 1 was reported as
N35, 800.
Required:
(a) Prepare a trading statement to identify the
manufacturing profit for the period 2 using existing absorption costing method.
(b) Determine the manufacturing profit that would be
reported in period 2 if marginal costing was used.
(c) Explain with supporting calculations the reasons
for the change in manufacturing profit between period 1 and 2 where absorption
costing is used in each period.
ASSIGNMENT 2
Wise-Up Communications Limited which
manufactures the “Campus” Radio Receiver commenced trading on June 29th, 2020.
The company`s budget for each four week period is as follows:
N N
Sales (20,000 receivers) 400,000
Manufacturing costs of goods sold:
Variable Cost 240,000
Fixed Overhead
60,000 (300,000)
Gross Profit 100,000
Selling and distribution cost (fixed) (20,000)
Net Profit 80,000
The following date relates to the first
two trading periods:
Period
1 Period 2
Production 24,000 18,000
Sales 18,000 21,000
Required:
Prepare operating statement for each of
the two periods on each of the following bases:
(a) Where
fixed manufacturing overhead is absorbed into product cost at the budgeted rate
and selling and distribution costs are treated as period costs.
(b) Where
all fixed costs are treated as period costs. You may assume that the selling
price, fixed costs and unit variable costs for the two periods are in line with
budget.
