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

Standard cost, Standard Cost A predetermined cost is representing the i...

Standard Cost A predetermined cost is representing the ideal or norm achievable through an organization. Standard costs form the basis of a standard cost system used extensivel

Labor costing, What is labor costing,what are the problems involved in labo...

What is labor costing,what are the problems involved in labor costing

Objectives of cost accounting, OBJECTIVES OF COST ACCOUNTING 1)To help ...

OBJECTIVES OF COST ACCOUNTING 1)To help in the development of long range plans by provided that cost data that acts as a origin for projecting data for planning. 2)To make s

Limitations of standard costing system, The use of standard costs can prese...

The use of standard costs can present a number of potential problems or disadvantages. Most of these problems result from improper use of standard costs and the management by excep

Break-even calculations, Break-Even Calculations As they say, a picture...

Break-Even Calculations As they say, a picture is significance a thousand words, and this is undoubtedly true for the CVP graphic just presented. Though, everyone is not an art

Determine difference between results using marginal costing, Determine Diff...

Determine Difference between Results Using Marginal Costing and Absorption Costing The overhead absorption rate for product X is Ksh.10 per machine hour. All unit of product X

Cost audit, what is cost audit? types of cost audit explain

what is cost audit? types of cost audit explain

Prepare cash flow statement, The following details are available from a com...

The following details are available from a company:                                                  2003                 2004                                      2003

Current overhead cost allocation system, Sam Edwards has been the accountin...

Sam Edwards has been the accounting manager for Jade Manufacturing in a highly competitive international market for ten years. Jade Manufacturing produces heavy equipment for two m

Cost accountign, Hi, i need the solution manual for cost accounting manager...

Hi, i need the solution manual for cost accounting managerial emphasis 12 edition

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