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

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

West Industries, West Industries is a highly decentralized corporation with...

West Industries is a highly decentralized corporation with independent operating divisions. Each division is evaluated and rewarded based on its total net income. One of the divisi

Why does rent control result in a shortage of rental unit, 1. Why does rent...

1. Why does rent control result in a shortage of rental units. 2. How does price elasticity of demand affect how much of a tax is passed on to the consumer and how much is absor

Calculate cost of debt and cost of preferred shares, You have been asked by...

You have been asked by Mogul-Basher (MB) Ltd., a manufacturer of snowboards, to evaluate its capital structure. As a first step, you need to estimate MB's current weighted average

What are the dimensions of the box with the minimum cost, A manufacturing c...

A manufacturing company wants to package its product in a rectangular box with a square base and a volume of 32 cubic inches. The cost of the material used for the top is $.05 squa

Meaning of budget, BUDGET A BUDGET is a quantitative expression of a ...

BUDGET A BUDGET is a quantitative expression of a business plan for a particular future period, generally a year. BUDGET is the planned future course of action. BUDGET

Describe the costing system, Go the Hershey website to learn how to make He...

Go the Hershey website to learn how to make Hershey chocolate. (There is also a "print friendly" version of the chocolate making process at the end of the video.) Review the proces

Prepare a properly classified cash flow statement, Prepare a properly class...

Prepare a properly classified Cash Flow Statement for Sports Enterprises Ltd for the year ended 31st December 2011. Note that the Closing Cash at Bank Balance at 31st December 2011

What is the cost of goods manufactured, information for the year ended Dece...

information for the year ended December 31, 2010: Direct labor $16,840 Direct material used 16,300 General and administrative expenses 14,240 Indirect production costs 16,780 Selli

Find the high future rates of return, Assume your grandparents have just gi...

Assume your grandparents have just given you $20,000 on the condition that you invest the money in the stock market. As you contemplate making your investment choices, what accoun

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