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Homework answers / question archive / Lucky Sdn Bhd intends to manufacture and supply new product in year 2021 for which the following information is provided: Per unit RM15

Lucky Sdn Bhd intends to manufacture and supply new product in year 2021 for which the following information is provided: Per unit RM15

Accounting

Lucky Sdn Bhd intends to manufacture and supply new product in year 2021 for which the following information is provided: Per unit RM15.00 Selling price Direct materials: Material A Material B RM1.50 per unit RM1.00 per unit Direct labour Production overhead RM0.90 per unit RM5.00 per unit Additional Information: i. Included in the production overhead cost per unit is the fixed production overhead. of RM 3.00 per unit. ii. Variable selling and distribution overhead is 10% of sales value. iii. The company activity level for the first two months of year 2021 is expected to be: Production units Sales units January 10,000 6,000 February 10,000 10,000 Required: a. Prepare the budgeted profit statement for the month of January and February 2020 using the Variable and Absorption Costing method. b. Reconcile the net income/loss under Absorption and Variable Costing method.

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a)

  Variable Costing Income Statement  
           
  Particulars   January February
           
  Sales     $ 90,000.00 $ 1,50,000.00
Less: Variable Expenses      
  Variable Cost of Goods sold $ 32,400.00 $    54,000.00
  Variable Selling and Dist. OH $   9,000.00 $    15,000.00
  Total Variable Expenses $ 41,400.00 $    69,000.00
  Contribution Margin   $ 48,600.00 $    81,000.00
Less: Fixed production overhead $ 30,000.00 $    30,000.00
  Operating Income   $ 18,600.00 $    51,000.00
  Absorption Costing Income Statement  
           
  Sales     $ 90,000.00 $ 1,50,000.00
Less: Cost of Goods sold   $ 50,400.00 $    84,000.00
  Gross Margin   $ 39,600.00 $    66,000.00
Less: Variable Selling and Dist. OH $   9,000.00 $    15,000.00
  Operating Income   $ 30,600.00 $    51,000.00
b) Reconciliation Statement      
          January February
  Operating income under variable costing $ 18,600.00 $ 51,000.00
Add: Fixed production overhead deferred in    
  inventory ($ 3 x 4000 units)   $ 12,000.00 $               -  
  Operating income under absorption costing $ 30,600.00 $ 51,000.00

Workings:

Computation of product cost per unit  
         
Particulars   Variable Absorption
Direct Materials   $      2.50 $      2.50
Direct Labor   $      0.90 $      0.90
Variable Production Overhead $      2.00 $      2.00
Fixed Production Overhead $          -   $      3.00
      $      5.40 $      8.40