Question

Question #9 Flexible budget for a product as prepare by Anchor Ltd, is given below: 15,000 Rs. 1.200,000 20,000 Rs. 1,600,000 Sales - unit 10,000 Rs. Sales 800,000 Manufacturing cost: Variable 300,000 Fixed 200,000 Total manufacturing cost 500,000 Marketing and other expenses Variable 200,000 Fixed 160,000 Total Marketing and other expense 360,000 Operating income / (loss) (60,000) 450,000 200,000 650,000 600,000 200,000 800,000 300,000 160,000 460,000 90,000 400,000 160,000 560,000 240,000 Additional information: • The budget of 20,000 units will be used for allocating the fixed manufacturing cost to units of product. At the end of first six months, 12,000 units have been completed and 6,000 units have been sold @ Rs.80 per unit. All fixed costs are budgeted and incurred uniformly throughout the year and all costs incurred, coincide with budget.

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Fixed manufacturing cost Budgeted production Fixed manufacturing rate per unit Absorption Costing $200,000 20,000 $10.00 Fixed overhead applied Actual production Fixed overhead applied 12,000 $120,000 AXB Product cost per unit-Absorption costing Variable Manufacturing Overhead Fixed manufacturing rate per unit Total product cost $30.00 $10.00 $40.00 Anchor Limited Income Statement-Absorption Costing ( 6 months) Production units Sales Closing stock Selling price per unit 12,000 6,000 6,000 $80 $480,000 $360,000 $120,000 $480,000 $240,000 Sales Less: Cost of Goods Sold Variable Manufacturing Overhead Fixed Manufacturing overhead Cost of Goods available for Sale Less: Closing Stock-(6,000 X 40) Cost of Goods Sold Gross Profit Less: Operating expenses Selling and administrative expenses (Variable + Fixed) Operating Income $240,000 $240,000 $200,000 (6,000* $20) +80,000 $40,000 Anchor Limited Income Statement- Marginal Costing ( 6 months) Production Sales Closing stock Selling price per unit 12,000 6,000 6,000 $80 $480,000 $360,000 $360,000 $180,000 Sales Less : Variable Cost of Goods Sold Variable manufacturing cost Cost of Goods available for Sale Less: Closing Stock (6,000 X $30) Variable Cost of Goods Sold Variable Selling and administrating expense Contribution Margin Less: Fixed Cost Fixed Manufacturing Overhead Selling and administrative expenses Operating Income $180,000 $120,000 $20 per unit sold $180,000 $100,000 $80,000 $180,000 $40,000 A b) Reconciliation of profit Profit as per Absorption Costing Less: Difference in closing stock Closing stock as per Absorption costing Closing stock as per Marginal costing Difference Add: Fixed overhead cost over-absorbed in Absorption costing $240,000 $180,000 $60,000 B $20,000C Profit as per Marginal costing $0 Fixed cost absorbed Fixed cost for 6 months based on budget Fixed overhead cost over-absorbed in Absorption costing $120,000 $100,000 $20,000