Question

On December 1, 2010 Alvis Producers Ltd had 250 units of stock item A150. The budgeted capacity of the company is 10,000 units per month. The following information was extracted from the books of Alvis Producers Ltd for the month of December 2010.

Details	$
Direct Materials cost per unit	200
Direct Labour cost per unit	150
Variable Overhead cost per unit	50
Total Variable cost per unit	400
Fixed Overhead cost per unit	100
Total cost per unit	500

During December 2010 the company produced 12,000 units and 11,750 units were sold at a price of $1,250 each.

Required:

1. Calculate the value of the closing stock.
2. Profit statement using Marginal Costing techniques.
3. Profit statement using Absorption Costing techniques.
4. Show a reconciliation of the profit figures obtained above.
5. Calculate Total Fixed Cost for the period

Answer 1

Opening Inventory	250
Production	12000
Sales	-11750
Units of closing inventory	500
Profit statement using marginal costing technique		(In $)
Sales (11750 *$1250)		1,46,87,500.00
Less:
Variable cost (12000*400)	48,00,000.00
Add: Opening Inventory (250*400)	1,00,000.00
less: Closing Inventory (500*400)	-2,00,000.00
Total Variable Cost		47,00,000.00
Contribution		99,87,500.00
Fixed overheads		10,00,000.00
Profit		89,87,500.00
Profit statement using absorption costing technique
		(In $)
Sales (11750 *$1250)		1,46,87,500.00
Less: Total Cost of Production
Variable cost (12000*400)	48,00,000.00
Fixed overheads	10,00,000.00
	58,00,000.00
Add: Opening Inventory (5800000/12000*250)	1,20,833.33
less: Closing Inventory (5800000/12000*500)	-2,41,666.67
Total Cost of Sales		56,79,166.67
Profit		90,08,333.33
Profit reconciliation statement	(In $)
Profit as per marginal costing technique	89,87,500
Add: under absorption of cost in Opening stock	-20,833.33
Less: under absorption of cost in closing stock	41,666.67
Profit as per absorption costing technique	90,08,333