RN Ltd. is a manufacturing company producing single product. The following information is available relating to current financial year: Activity…

CA Intermediate · Cost and Management Accounting · MTP · May 2025
RN Ltd. is a manufacturing company producing single product. The following information is available relating to current financial year: Activity Level 100% Sales and production (units) 4,400 (₹) Sales 88,00,000 Production costs: Variable 35,20,000 Fixed 8,80,000 Selling and distribution costs: Variable 17,60,000 Fixed 13,20,000 Fixed costs are incurred evenly throughout the year, and actual fixed costs are the same as budgeted. Thus, at 50% activity level, fixed production cost and fixed selling and distribution costs remains the same and other data/figures which are variable changes proportionately. The normal level of activity for the year is 4,400 units. There were no stock at the beginning of the year. In the first quarter, 1,210 units were produced and 880 units were sold. You are required to COMPUTE the profit for the quarter using- (i) Absorption costing (ii) Marginal costing.

Suggested Answer and Working Notes:

(i) Profit for the Quarter (Absorption Costing) Particulars (₹) (₹) Sales revenue (880 units × (₹ 88,00,000 / 4,400 units)): (A) 17,60,000 Less: Production costs: - Variable cost (1,210 units × (₹ 35,20,000 / 4,400 units)) 9,68,000 - Fixed overheads absorbed (1,210 units × ₹ 200*) 2,42,000 12,10,000 Add: Opening stock - Less: Closing Stock [(₹ 12,10,000 / 1,210 units) x 330 units] (3,30,000) Cost of Goods sold 8,80,000 Less: Adjustment for over-absorption of fixed production overheads ** (22,000) Add: Selling & Distribution Overheads: - Variable (880 units × (₹ 17,60,000 / 4,400 units)) 3,52,000 - Fixed (1/4 th of 13,20,000) 3,30,000 6,82,000 Cost of Sales (B) 15,40,000 Profit {(A) – (B)} 2,20,000 * absorption rate:8,80,000/4,400 = 200 per unit ** Actual fixed production overhead - Absorbed fixed production overhead = 8,80,000/4 - 2,42,000 = ₹ (22,000) (ii) Profit for the Quarter (Marginal Costing) Particulars (₹) (₹) Sales revenue (880 units × (₹ 88,00,000 / 4,400 units)): (A) 17,60,000 Less: Production costs: - Variable cost (1,210 units × (₹ 35,20,000 / 4,400 units)) 9,68,000 Add: Opening stock - Less: Closing Stock [(₹ 9,68,000 / 1,210 units) x 330 units] (2,64,000) Variable cost of goods sold 7,04,000 Add: Selling & Distribution Overheads: - Variable (880 units × (₹ 17,60,000 / 4,400 units)) 3,52,000 Cost of Sales (B) 10,56,000 Contribution {(C) = (A) – (B)} 7,04,000 Less: Fixed Costs: - Production cost (₹ 8,80,000 / 4) (2,20,000) - Selling & distribution cost (₹ 13,20,000 / 4) (3,30,000) (5,50,000) Profit 1,54,000

Topics: Marginal Costing

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