- 20 Marks
PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques
Calculate profit-maximizing output using both marginal and throughput accounting principles and compare the approaches for Kahkiri Limited.
Question
The following cost and profitability estimates have been prepared:
| Product | X | Y |
|---|---|---|
| Sales price | 44 | 54 |
| Direct materials | 20 | 18 |
| Direct Labour | 6 | 11 |
| Variable overhead | 6 | 11 |
| Contribution per unit | 12 | 14 |
| Attributable fixed cost | N10,000 | N10,000 |
| Machine hours per unit | 1.5 hours | 2 hours |
Fixed costs in each period are N100,000.
Required:
a. Using marginal costing approach, calculate the profit-maximising output for the period, and the associated profit for each product and the company. (4 Marks)
b. What are the advantages of throughput accounting over marginal costing method in profit-maximising decisions? (4 Marks)
c. Calculate the throughput accounting ratio for Product X and for Product Y. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximising output in each period, and calculate the amount of the profit. (4 Marks)
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