You are supposed to calculate the profit for the year, by the (a) Marginal costing method, and (b) Absorption costing method.

Ash Company’s normal capacity utilization is reckoned as 90%, it has a production capacity of 2,00,000 units per year. Standard variable production costs and the variable selling costs are Rs.11and Rs 3 per unit respectively. However the fixed costs and the fixed selling costs are Rs.3,60,000 and Rs 2,70,000 per year respectively. The unit selling price is Rs.20. In the year just ended on 30^th June 2006, the production was 1,60,000 units and sales were 1,50,000 units. The closing inventory on 30^th June was 20,000 units. The actual variable production costs for the year were Rs.35,000 higher than the standard.

 

You are supposed to calculate the profit for the year, by the

(a)               Marginal costing method, and

(b)               Absorption costing method.  

(a) MARGINAL COSTING METHODS

Sale 150000 × 20 = 3000000

-V. Cost

160000 × 11 = 1760000

+ Add Exp           35000

Actual V. cost   1795000

+ opening stock in goods

10000 × 11              + 110000

- cost finished goods

V. cost of product                168625

+ V. cost of sale

150000 × 3             

T. variable cost                  

Contribution

- fixed cost                                             630000

Product                                                  239375

(b) variable costing

+ opening stock of 10000 unit at per year cost

90%. Capacity = 180000 units

180000 × 11 = 1980000

+ fixed               

180000 × 10000 = + 130000

-          Cost of 20000 unit

-          

Cost of Goods Sales 2015625

+ Selling overhead     720000

(450000 + 270000)

Cost of sale = 2735625

Sale                         3000000                  (150000 × 20)

-          cost of sale – 2735625

project – 264375