A company makes and sells a single product. At the beginning of period 1, there is no opening stock of the product, for which the variable production cost is Rs.4 and the sale price is Rs.6 per unit. Fixed costs are Rs.2,000 per period of which Rs.1,500 are fixed production costs. The following details are available: The Sales & Production for Period 1 were 1,200 units & 1,500 units and that for period 2 were 1,800 units & 1,500 units respectively. What would be the profit in each period using - (a) Absorption costing. (Assume normal output is 1,500 units per period); and (b) Marginal costing?
a) Absorption Costing Rs. 500 & Rs 1500. Marginal Costing Rs. 600 & Rs. 1400
b) Absorption Costing Rs. 800 & Rs 1200. Marginal Costing Rs. 700 & Rs. 1300
c) Absorption Costing Rs. 700 & Rs 1300. Marginal Costing Rs. 400 & Rs. 1600
d) Absorption Costing Rs. 800 & Rs 1200. Marginal Costing Rs. 600 & Rs. 1400
Answers
Answer:
Q.23 From the following information supplied by M.B.S. Club, prepare Receipts and Payments
account and Income and Expenditure Account for the year ended 31st March 2019.
01.04.2018
31.03.2019
Rs.
Rs.
Outstanding subscription
1,40,000
2,00,000
Advance subscription
25,000
30,000
Outstanding salaries
15,000
18,000
Cash in Hand and at Bank
1,10,000
?
10% Investment
1,40,000
70,000
Furniture
28,000
14,000
Machinery
10,000
20,000
Sports goods
15,000
25,000
Subscription for the year amount to Rs. 3,00,000/-. Salaries paid Rs. 60,000. Face value of
the Investment was Rs. 1,75,000, 50% of the Investment was sold at 80% of Face Value.
Interest on investments was received Rs. 14,000. Furniture was sold for Rs. 8000 at the
beginning of the year. Machinery and Sports Goods purchased and put to use at the last
date of the year. Charge depreciation @ 15% p.a. on Machinery and Sports goods and
@10% p.a. on Furniture.
Following Expenses were made during the year:
Sports Expenses: Rs. 50,000
Rent:
Rs. 24,000 out of which Rs. 2,000 outstanding
Misc. Expenses: Rs. 5,000
Answer:
Explanation:
To calculate the profit in each period using absorption costing and marginal costing, we need to consider the variable costs, fixed costs, sales, and production quantities for each period.
(a) Absorption Costing:
In absorption costing, both variable and fixed production costs are allocated to the product. Here's how we calculate the profit for each period:
Period 1:
Sales revenue = Sales * Sale price = 1,200 units * Rs. 6 = Rs. 7,200
Total variable production cost = Production * Variable cost per unit = 1,500 units * Rs. 4 = Rs. 6,000
Total fixed production cost = Fixed production cost per period = Rs. 1,500
Total fixed costs = Fixed production cost per period + Remaining fixed costs = Rs. 1,500 + Rs. 500 (2,000 - 1,500) = Rs. 2,000
Profit = Sales revenue - (Total variable production cost + Total fixed costs)
= Rs. 7,200 - (Rs. 6,000 + Rs. 2,000)
= Rs. -800 (Loss)
Period 2:
Sales revenue = Sales * Sale price = 1,800 units * Rs. 6 = Rs. 10,800
Total variable production cost = Production * Variable cost per unit = 1,500 units * Rs. 4 = Rs. 6,000
Total fixed production cost = Fixed production cost per period = Rs. 1,500
Total fixed costs = Fixed production cost per period + Remaining fixed costs = Rs. 1,500 + Rs. 500 (2,000 - 1,500) = Rs. 2,000
Profit = Sales revenue - (Total variable production cost + Total fixed costs)
= Rs. 10,800 - (Rs. 6,000 + Rs. 2,000)
= Rs. 2,800
Therefore, the profit in Period 1 using absorption costing is a loss of Rs. 800, and the profit in Period 2 is Rs. 2,800.
(b) Marginal Costing:
In marginal costing, only the variable costs are allocated to the product. Fixed costs are treated as period costs and are not assigned to the product. Here's how we calculate the profit for each period:
Period 1:
Sales revenue = Sales * Sale price = 1,200 units * Rs. 6 = Rs. 7,200
Total variable production cost = Production * Variable cost per unit = 1,500 units * Rs. 4 = Rs. 6,000
Profit = Sales revenue - Total variable production cost
= Rs. 7,200 - Rs. 6,000
= Rs. 1,200
Period 2:
Sales revenue = Sales * Sale price = 1,800 units * Rs. 6 = Rs. 10,800
Total variable production cost = Production * Variable cost per unit = 1,500 units * Rs. 4 = Rs. 6,000
Profit = Sales revenue - Total variable production cost
= Rs. 10,800 - Rs. 6,000
= Rs. 4,800
Therefore, the profit in Period 1 using marginal costing is Rs. 1,200, and the profit in Period 2 is Rs. 4,800.