Determine profit in long-term, Cost Accounting

Assignment Help:

Determine Profit in Long-Term

To demonstrate the point about profit in the long-term, let us assume that a company sells and makes a single product.  There are no opening stocks of the product at the beginning of period 1, for that the variable production cost is Ksh.4 and the sales price Ksh.6 per unit. However fixed costs are Ksh.2, 000 per period, of that Ksh.1, 500 are fixed production costs,

 

Period

Period 2

Sales

1,200 units

1,800 units

Production

1,500 units

1,500 units

What would the profit be in all period utilizing the following methods of costing?

a) Absorption costing.  Suppose usual output is 1,500 units per period.

b) Marginal costing.

Solution

It is significant to notice that even if sales and production volumes in each period are different and then the profit for each period via absorption costing will be different from the profit via marginal costing, over the full period, net production equals sales volume, the net cost of sales is the similar, and hence the net profit is the same via either method of accounting.

a) Absorption costing: the absorption rate for fixed production overhead is,

= £ 1,500/£1,500 units

= £ 1 per unit

 

Period 1

Period 2

Period 3

 

Ksh.

Ksh.

Ksh.

Ksh.

Ksh.

Ksh.

Sales

 

7,200

 

10,800

 

 

Production costs

 

 

 

 

 

 

     Variable

6,000

 

6,000

 

12,000

 

     Fixed

1,500

 

1,500

 

 3,000

 

 

7,500

 

7,500

 

15,000

 

Add opening stock b/f

      -

 

1,500

 

        -

 

 

7,500

 

9,000

 

15,000

 

Less closing stock c/f

1,500

 

-

 

-

 

Production cost of sales

6,00

 

9,000

 

 

 

(Under-)/over-absorbed overhead

-

 

-

 

 

 

Total production costs

 

6,000

 

9,000

 

15,000

Gross profit

 

1,200

 

1,800

 

3,000

Other costs

 

  500

 

  500

 

1,000

Net profit

 

  700

 

1,300

 

2,000

b) Marginal Costing

 

Period 1

Period 2

Period 3

 

Ksh.

Ksh.

Ksh.

Ksh.

Ksh.

Ksh.

          Sales

 

7,200

 

10,800

 

10,800

       Variable production cost

6,000

 

6,000

 

12,000

 

        Add opening stock b/f

      -

 

1,200

 

-

 

 

6,000

 

7,200

 

12,000

 

          Less closing stock c/f

1,200

 

-

 

-

 

 Variable production cost of sales

 

4,800

 

7,200

 

12,000

         Contribution

 

2,400

 

3,600

 

6,000

          Fixed costs

 

2,000

 

2,000

 

4,000

         Profit

 

400

 

1,600

 

2,000


Related Discussions:- Determine profit in long-term

What is the cost sheet, Cost sheet is a declaration of cost for a product f...

Cost sheet is a declaration of cost for a product for given period of time.

Numerical question, Beaver Company (a multi-product firm) produces 5,000 un...

Beaver Company (a multi-product firm) produces 5,000 units of Product X each year. Each unit of Product X sells for $8 and has a contribution margin of $5. If Product X is disconti

Total landed cost, How many pounds of guava puree are required? a. In a ...

How many pounds of guava puree are required? a. In a month? b. How many in a year? In computing the Total Landed cost for mango concentrate, we are interested in the incre

Angle of incidence, ANGLE OF INCIDENCE:   It is an angle that is created wh...

ANGLE OF INCIDENCE:   It is an angle that is created when the entire sales line intercepts the entire cost line from below in the breakeven chart. It is inferred that higher the an

Assessment item 2, rocess costing Prepare a spreadsheet to solve the follow...

rocess costing Prepare a spreadsheet to solve the following process costing problem. Review the four process costing videos provided in Interact Resources. Note that in the situati

Calculate the ß, Calculate the β of Maine Corporation from the following da...

Calculate the β of Maine Corporation from the following data. The prices are at the beginning and at the end of each year     Normal 0 false false

Compute the annual depreciation on the new equipment, Goldman Corporation b...

Goldman Corporation bought a machine on June 1, 2010, for $44,838, f.o.b. the place of manufacture. Freight to the point where it was set up was $282, and $705 was expended to inst

Cost concepts / classification of costs, COST CONCEPTS / CLASSIFICATION OF ...

COST CONCEPTS / CLASSIFICATION OF COSTS 1. According to functions Administration cost / office cost Selling cost Production cost / factory cost / manufacturing c

Traditional income statement, Traditional income statement: The DU Inn i...

Traditional income statement: The DU Inn is an 80-room hotel located on some mountaintop in Colorado. It has no bar or restaurant and is positioned as a mid-priced, good quality

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd