Profit statements – NBC Institute

MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

Question

Paquris Limited is into the manufacture of various products. The following data refer to one of its products for a one-month period:


Direct material – Units 120,000	₦3,000,000
Direct labour – Hours 120,000	₦6,600,000
Direct expenses	₦2,000,000
Variable production overhead	₦1,500,000
Fixed production overhead	₦3,600,000
Variable non-production overhead	₦1,020,000
Fixed non-production overhead	₦4,740,000
Sales – Units 115,000	₦25,300,000
Opening inventory	–

You are required to:
a. Prepare the statement of profit or loss using full absorption costing. (8 Marks)
b. Prepare the statement of profit or loss using marginal costing. (7 Marks)
c. Prepare closing inventory valuation on both bases. (3 Marks)
d. State and explain the differences between (a) and (b). (2 Marks)

Answer

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Tags: Absorption Costing, Marginal Costing, Profit statements
Level: Level 1

Topic: Costing Techniques
Series: MAY 2022

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Question

Lamiokor and Zenator are two divisions of Tsorkor group. Lamiokor division manufactures an intermediate product known as component A which has no external market. Zenator division incorporates this intermediate product, component A, into a final product that it sells to external customers. One unit of component A is used in the production of one unit of the final product. Lamiokor has quoted a transfer price of GH¢45 for each unit of component A.

The details of monthly production costs for each division are as follows:

Lamiokor Division:

Variable cost: GH¢15 per Component A
Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

Variable cost: GH¢9 per unit
Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month	Demand (Units)	Selling price per Unit (GH¢)
1	1,000	120
2	3,000	100
3	4,000	90
4	5,000	80
5	6,000	67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

Answer

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Tags: Divisional Autonomy, Divisional Performance, Goal Congruence, Profit statements, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2021

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

Question

Bosco Ltd makes and sells one product. Currently, it uses absorption costing to measure profits and inventory values. The budgeted production cost per unit is as follows:

Item	Cost (GH¢)
Direct labour (3 hours at GH¢6 per hour)	18
Direct materials (4 kilograms at GH¢7 per kilo)	28
Production Overhead (Fixed cost)	20
Total Cost per Unit	66

Normal output volume is 16,000 units per year, and this volume is used to establish the fixed overhead absorption rate for each year. Costs relating to sales, distribution, and administration are:

Variable: 20% of sales value
Fixed: GH¢180,000 per year

There were no units of finished goods inventory on 1st October 2015. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GH¢140. For the two six-monthly periods detailed below, the number of units to be produced and sold are budgeted as follows:

Period	Production (units)	Sales (units)
Six months ending 31st March 2016	8,500	7,000
Six months ending 30th September 2016	7,000	8,000

The entity is considering whether to abandon absorption costing and use marginal costing instead for profit reporting and inventory valuation.

Required:

i) Calculate the budgeted fixed production overhead costs for each of the six-monthly periods. (3 marks)

ii) Prepare profit statements for management using:

Marginal costing
Absorption costing

(9 marks)

iii) Prepare an explanatory statement reconciling the profits under marginal costing with those of absorption costing.

(3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Inventory Valuation, Marginal Costing, Overhead Absorption, Profit statements
Level: Level 2

Topic: Standard Costing and Variance Analysis
Series: MAY 2017

MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

Question

Paquris Limited is into the manufacture of various products. The following data refer to one of its products for a one-month period:


Direct material – Units 120,000	₦3,000,000
Direct labour – Hours 120,000	₦6,600,000
Direct expenses	₦2,000,000
Variable production overhead	₦1,500,000
Fixed production overhead	₦3,600,000
Variable non-production overhead	₦1,020,000
Fixed non-production overhead	₦4,740,000
Sales – Units 115,000	₦25,300,000
Opening inventory	–

Answer

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Marginal Costing, Profit statements
Level: Level 1

Topic: Costing Techniques
Series: MAY 2022

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Question

The details of monthly production costs for each division are as follows:

Lamiokor Division:

Variable cost: GH¢15 per Component A
Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

Variable cost: GH¢9 per unit
Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month	Demand (Units)	Selling price per Unit (GH¢)
1	1,000	120
2	3,000	100
3	4,000	90
4	5,000	80
5	6,000	67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Divisional Autonomy, Divisional Performance, Goal Congruence, Profit statements, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2021

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

Question

Bosco Ltd makes and sells one product. Currently, it uses absorption costing to measure profits and inventory values. The budgeted production cost per unit is as follows:

Item	Cost (GH¢)
Direct labour (3 hours at GH¢6 per hour)	18
Direct materials (4 kilograms at GH¢7 per kilo)	28
Production Overhead (Fixed cost)	20
Total Cost per Unit	66

Normal output volume is 16,000 units per year, and this volume is used to establish the fixed overhead absorption rate for each year. Costs relating to sales, distribution, and administration are:

Variable: 20% of sales value
Fixed: GH¢180,000 per year

Period	Production (units)	Sales (units)
Six months ending 31st March 2016	8,500	7,000
Six months ending 30th September 2016	7,000	8,000

The entity is considering whether to abandon absorption costing and use marginal costing instead for profit reporting and inventory valuation.

Required:

i) Calculate the budgeted fixed production overhead costs for each of the six-monthly periods. (3 marks)

ii) Prepare profit statements for management using:

Marginal costing
Absorption costing

(9 marks)

iii) Prepare an explanatory statement reconciling the profits under marginal costing with those of absorption costing.

(3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Inventory Valuation, Marginal Costing, Overhead Absorption, Profit statements
Level: Level 2

Topic: Standard Costing and Variance Analysis
Series: MAY 2017

Question Tag: Profit statements

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MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

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MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

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MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

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MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

You're reporting an error for "MA – May 2017 – L2 – Q3a – Standard costing and variance analysis"

MI – May 2022 – L1 – SB – Q3 – Costing Techniques

Prepare profit or loss statements using both absorption and marginal costing, and explain the differences.

You're reporting an error for "MI – May 2022 – L1 – SB – Q3 – Costing Techniques"

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

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MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

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