AB Ltd produces a single product V2 and sells it at a fixed price of 2,050 per unit. The production and sales data for first quarter of the year…

CA Intermediate · Cost and Management Accounting · MTP · May 2024
AB Ltd produces a single product V2 and sells it at a fixed price of 2,050 per unit. The production and sales data for first quarter of the year 2023-24 are as follows: April May June Sales in units 4,200 4,500 5,200 Production in units 4,600 4,400 5,500 Actual/budget information for each month was as follows: Direct materials: 4 kilograms at 120 per kilogramDirect labour: 6 hours at 60 per hourVariable production overheads: 150% of direct labourFixed production overheads:5,00,000Fixed selling overheads:95,000 There was no opening inventory at the start of the quarter. Fixed production overheads are budgeted at 60,00,000 per annum and are absorbed into products based on a budgeted normal output of 60,000 units per annum. Required: (i) Prepare a profit statement for each of the three months using absorption costing principles. (ii) Prepare a profit statement for each of the three months using marginal costing principles. (iii) Present a reconciliation of the profit or loss figures given in your answer to (i) and (ii).

Suggested Answer and Working Notes:

(i) Statement of Profit under Absorption Costing Particulars April (₹) May (₹) June (₹) Sales (units) 4,200 4,500 5,200 Selling price per unit 2,050 2,050 2,050 Sales value (A) 86,10,000 92,25,000 1,06,60,000 Cost of Goods Sold: Opening Stock @1,480 0 5,92,000 4,44,000 Production cost @1,480 68,08,000 65,12,000 81,40,000 Closing Stock @1,480 (5,92,000) (4,44,000) (8,88,000) Under/ (Over) absorption 40,000 60,000 (50,000) Add: Fixed Selling Overheads 95,000 95,000 95,000 Cost of Sales (B) 63,51,000 68,15,000 77,41,000 Profit (A - B) 22,59,000 24,10,000 29,19,000 Workings: 1. Calculation of full production cost (₹) Direct Materials (4 kg. × ₹ 120) 480 Direct labour (6 hours × ₹ 60) 360 Variable production Overhead (150% of 360) 540 Total Variable cost 1,380 Fixed production overhead (₹ 60,00,000 / 60,000 units) 100 1,480 2. Calculation of Opening and Closing stock April May June Opening Stock 0 400 300 Add: Production 4,600 4,400 5,500 Less: Sales 4,200 4,500 5,200 Closing Stock 400 300 600 3. Calculation of Under/Over absorption of fixed production overhead April (₹) May (₹) June (₹) Actual Overhead 5,00,000 5,00,000 5,00,000 Overhead absorbed 4,60,000 (4,600 units × ₹ 100) 4,40,000 (4,400 units × ₹ 100) 5,50,000 (5,500 units × ₹ 100) Under/(Over) absorption 40,000 60,000 (50,000) (ii) Statement of Profit under Marginal Costing Particulars April (₹) May (₹) June (₹) Sales (units) 4,200 4,500 5,200 Selling price per unit 2,050 2,050 2,050 Sales value 86,10,000 92,25,000 1,06,60,000 Less: Variable production cost @1,380 57,96,000 62,10,000 71,76,000 Contribution 28,14,000 30,15,000 34,84,000 Less: Fixed Production Overheads 5,00,000 5,00,000 5,00,000 Less: Fixed Selling Overheads 95,000 95,000 95,000 Profit 22,19,000 24,20,000 28,89,000 (iii) Reconciliation of profit under Absorption costing to Marginal Costing Particulars April (₹) May (₹) June (₹) Profit under Absorption Costing 22,59,000 24,10,000 29,19,000 Add: Opening Stock 0 40,000 (400 × ₹ 100) 30,000 (300 × ₹ 100) Less: Closing Stock 40,000 (400 × ₹ 100) 30,000 (300 × ₹ 100) 60,000 (600 × ₹ 100) Profit under Marginal Costing 22,19,000 24,20,000 28,89,000

Topics: Marginal Costing

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