Question:

A company produces and sells a single product, the standard unit cost details of which are as follows:

Direct material 2 kilos x Rs4.5 per kilo
Direct labour 3 hours x Rs5 per hour
Variable overhead 3 hours x Rs3 per hour

The total fixed overhead is budgeted at Rs90,000 per month and is absorbed on a rate per unit basis. The budgeted output per month is 15,000 units. The product has a standard selling price of Rs50 per unit.

The following activity took place during January and February:

There is an opening stock on 1 January of 3,000 units.

Required:

a) Calculate the standard cost and profit for one unit of output.

b) Prepare profit statements for each month using:
(i) Marginal costing
(ii) Absorption costing

c) Prepare a statement reconciling the marginal with the absorption profit for each month.