Question

QUESTION 3 NTM MANUFACTURING HAS THE FOLLOWING INFORMATION Selling price per unit R50 1 600 units 2 000 units R13 Sales for the month Production for the month Variable production costs per unit Variable selling and administrative costs per unit Fixed production costs Fixed selling and administration costs R6 R11 900 R6 200 Required 1. Prepare the Income statement for February 2019 according to the marginal costing method 2. Prepare the Income statement for February 2019 according to the absorption costing method 3. Reconcile the profit calculated according to absorption costing with the profit calculated according to marginal costing.

Answer 1

Answer:

1- Income statement - Marginal costing method NTM MANUFACTURING Income statement For the month February-2019 Sales (sales unit x price per unit] R less: Variable cost Cost of goods sold (sales unit x R 13] R Selling expenses (sales unit x R6] R Total variable cost R 80,000 1600 x 50 20,800 1600 x 13 9,600 1600 x 6 30,400 20800 +9600 Contribution margin (sales-variable cost] R 49,600 80000 - 30400 R less: Fixed expenses Production cost Selling and administrative cost Total fixed expenses R 11,900 200 12,100 11900 + 200 R Net operating income (loss) R 37,500 49600 - 12100

2- Unit product cost under absorption costing Amount Variable production cost R 13.00 Fixed production cost 5.95 Unit product cost R 18.95 Fixed production cost = Total Fixed production cost / Unit produced = R 11,900 / 2,000 = R 5.95 R Cost of goods sold, Year 1 Units sold = 1,600 units Cost of goods sold = 1600 x 18.95 = R 30,320 Income statement - Absorption costing method NTM MANUFACTURING Income statement For the month February-2019 Sales (sales unit x price per unit] R less: Cost of goods sold R Gross margin (sales-cost of goods sold] less: Selling and distribution expenses Net operating income (loss) R 80,000 30,320 49,680 9,800 39,880 Selling and distribution expense, Year 1 Units sold = 1,600 units Selling and distribution expense = (1600 x 6) + 200 = R 9,800 R R 3- Marginal costing, Net operating income (loss) add: Fixed manufacturing overhead on closing inventory less: Fixed manufacturing overhead on opening inventory Absorption costing, Net operating income (loss) Closing inventory = 400 units [2000-1600] Fixed production cost per unit = R 5.95 Amount $ 37,500 $ 2,380 [400 x R 5.95] $ $ 39,880