Chapter 1: ABSORPTION COSTING (AC) & MARGINAL COSTING (MC)

MC INCOME STATEMENT

$ $

Revenue/ Sales ……………….

- Opening inventory (…….…………..)

+ Variable production cost ………………….

- Closing inventory (………………….)

- Variable selling & distribution (.........................)

……???……. (…… ??? … ...)

Contribution …………………

- FPOH (....……………)

- Fixed selling & distribution (………………)

NET PROFIT ???

AC INCOME STATEMENT

$ $

Revenue/ Sales ……………….

- Opening inventory (…….…………..)

+ Variable production cost .…………………

+ Absorbed FPOH ………………….

- Closing inventory (………………….)

Adjustment for over/ under absorption …………………

……???……. (….…???.......)

Gross Profit …………………

- Variable selling & distribution (………………)

- Fixed selling & distribution (……………..)

NET PROFIT ???

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Q1/ 26 (C4)

AC & MC will be

2
Q2/ 26_C4

3
R.
DM + DL + VPOH = $10/ unit
P = $35/ unit
FPOH = $1,000/ month
T1: Q production = Q sold = 100 unit
T2: Q production = 100
Q sold = 75
T3: Q production = 50
Q sold = 75

Q9/ 28 (C4)

4
Q10/ 28

5
/100 (C4)

6
/101 (C4)

7
Q11/ 28 (C4)

Q13/ 28 (C4)

8
/102 (C4)

9
10
Q6/27 (C4)

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BÀI THƯỜNG KỲ
The following cost details relate to one unit of product X:
£ per unit
Direct materials 4
Direct labor 10
Variable Production overheads 2
Selling and distribution overheads
Variable 3
Fixed 7.5
Fixed production overhead incurred of £ 30,000 was the same as budgeted.
Fixed production overhead is absorbed on the basis of labor hours.
During the period, total of 10,000 direct labor hours were recorded, which is the same as budget, at the rate
of £5 per hour.
The company had 500 units of inventory at the beginning of the period. During the period, company
produced 5,000 units and 3,000 units were sold at the price of £50.
Assuming that unit variable and fixed costs are constant.

Required:
a. Prepare the AC & MC income statement (4 marks)
b. Based on the net profit calculated from question a above, calculate the net profit using a marginal
costing system (1 mark)

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Question 2
Adams Ltd's budget for its first month of trading, during which 1.000 unit are expected to be produced and
800 units sold, is as follows:
- Variable production cost: $95.500
- FPOH: $25,800
The profit calculated on the absorption cost basis compared with the profit calculated on the
marginal cost basis is:
A $24.260 lower
B $5.160 higher
C $5.160 lower
D $24.260 higher

Question 3:
GardenRite Ltd manufactures wheelbarrows with a selling price of £100 per wheelbarrow. Budgeted
production and sales volume is 2,000 wheelbarrows per month. During January 20X8 2,000 wheelbarrows
were made of which 1,400 were sold. There was no opening inventory.
The variable cost per wheelbarrow is £55. Fixed costs in January were, as budgeted, £50,000.
Using marginal costing calculate the contribution and profit for January.
A Contribution: £63,000, Profit f13,000
B Contribution: £63,000, Profit £28,000
C Contribution: £90,000, Profit €13,000
D Contribution: £90,000, Profit £28,000

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Question 4:
Citricacid pl budgets during its first year of operations to produce and sell 38,160 litres of product per annum
at a selling price of £10 per litre.
Citricacid's budgeted costs are as follows:
£ per unit
Variable production costs 3.54
Fixed production costs 1.04
Variable selling costs 2.50

In the first year the unit selling price was £10 per litre and the variable unit cost and expenditure on fixed
production costs were also as budgeted. Actual sales volume was 38,400 litres and closing inventory was
960 litres.
Using absorption costing Citricacid's profit for the year was

Question 5:
Eve Ltd's production budget for its first year of trading, during which 2,500 units are expected to be
maunfactured is as follows:
£
Variable production costs 229,200
Fixed production costs 61,920

The unit selling price is £300 and budgeted sales are 2,200 units.

Eve's profit for its first year of trading calculated on the absorption cost basis compared with the
profit calculated on the marginal cost basis is:

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Question 6:
Bellco had an opening inventory of 4,500 units and a closing inventory of 1,500 units. Bellco's profits based
on marginal costing were £126,100 and on absorption costing were €115,300.
What is Bellco's fixed overhead absorption rate per unit?
A £1.80
B £2.40
C £3.60
D £7.20

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 Chapter 9

Question 1:
Standard

Manufacturing Cost Elements Quantity × Price = Cost

Direct materials 6 oz. × $ 0.90 = $5.40
Direct labor 0.5 hrs. × $ 12.00 = $6.00
Manufacturing overhead 0.5 hrs. × $ 4.80 = $2.40
$13.80
Actual output = 10,000 unit with actual unit cost as follow:
Quantity Price Cost
Direct material 5.8 oz. $1 $5.8
Direct labour 0.49 hrs. $11.5 $5.635 OR
Manufacturing OH $2.55
Total $13.985

a/ Total cost variance

b/ DM total variance

c/ DM price variance

d/ DM usage variance

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e/ DL total variance

f/ DL rate variance

g/ DL efficiency variance

Question 7:
Fadew Ltd uses a standard costing system. The budget for one of its products for June includes labour cost
(based on 4 hours per unit) of €17,600. During June 350 units were made which was 25 units less than
budgeted. The labour cost incurred was £11,850 and the number of labour hours worked was
1,000.
Fadew's labour rate variance for June was:
A £120 (F)
B £4,577 (F)
C £120 (A)
D £4,577 (A)

Question 7’:

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Fadew Ltd uses a standard costing system. The DL budgeted cost for June (based on 4 hour/unit) is
$17,600. During June, 350 unit were made which was 25 units less than budgeted.
The labour cost incurred was $11,850 and the number of labor hours worked was 1,000 hours.
What's labor rate variance for June?

Question 8':
Blade pic uses a standard costing system. The budget for 'Excel Knife' product includes labour cost (based
on 2 hours per unit) of £27,600. During the last financial period 1,250 units were made which was 250 units
more than budgeted. The labour cost incurred was £28,850 and the number of labour hours worked was
2,400.
The labour efficiency variance for the month was:
A £1,202 (F)
B £1,202 (A)
C £1,380 (A)
D £1,380 (F)

Question 9:
Extracts from Mahon Ltd's records for November 20X7 are as follows:
Budget Actual
Production 1,248 units 1,344 units
Variable production overhead cost £7,488 £7,677
Labour hours worked 3,744 5,376
The variable production overhead total variance for November is:
A £387 (A)
B £387 (F)
C £189 (A)
D £189 (F)

Question 13:

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The budgeted sales revenue for product T last period was £96,000 with a standard selling price of £80 and
a standard variable cost per unit of £72. Actual sales for the period were 1,090 units, generating sales
revenue of £85,020 and a contribution of £8,175.
Which of the following shows the correct combination of the adverse sales volume variance and the
adverse sales price variance?
Sales volume variance Sales price variance
A £825 £2,180
B £880 £2,180
C £880 £10,980
D £8,800 £2,180

Question 14:
Graundene Ltd manufactures a single product with the following cost and selling price details:
£ per unit £ per unit

Selling price 40
Variable material 12
Variable labour 4
Variable overhead 4
Fixed overhead 10
30
Profit per unit 10

In July 20X8 Graudene produced 22,000 units and sold 24,000 units. The opening inventory was 5,0 units.
Graudene's profits reported using marginal costing were £275,000.
The profits reported using an absorption costing system would be?

Question 15:

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News Co operates a standard costing system. It purchased and used 53,000 kg of material at a cost of
$2.83 per kg.
The budgeted production was 25,000 units which requires 50,000 kg of material at a total standard cost of
$125,000. The actual production was 27,000 units.
1/ What is DM price variance?

2/ What is DM usage variance?

R. Product X has a standard direct material cost as follows:

- 10 kilograms of material Y at $10 per kilogram = $100 per unit of X
- During period 4: 1,000 units of X were manufactured, using 11,700 kilograms of material Y which cost
$99,450
Required:
1/ The direct material total variance

2/ The direct material price variance

3/ The direct material usage variance

Q13/76_A

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R. The company has a direct material standand cost of $10/ kg . During the period, 3,000 kg of material was
purchased and used at a cost of $ 22,500 in order to produce 1,500 units of the product. The budgeted
material cost $20,000 had been based on budgeted production of 1,200 units of the product
Caculate direct material total variance

R. The company produces product X and uses standard costing system with raw material inventory
maintained at standard cost. Standard direct material cost are as follows
- 10 kg of material Y at $10 per kg = $100 per unit of X
- During the period, company purchased 13,000 kg of Y for $110, 500 and used 11,700 kg of Y to produce
1,000 unit of X
Required:
1/ The direct material price variance

2/ The direct material usage variance

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R. The standard direct labour cost of product X is as follows
- 0.5 hours of grade Z labor at $20 per hour = $10 per unit of product X
- During period 4: 2,000 units of product X were made, and the direct labour cost a grade Z labor was
$22,050 for 1,050 hours of work
Required:
1/ The direct labour total variance

2/ The direct labour rate variance

3/ The direct labour efficiency variance

R. A company incurred a total unfavorable direct labour variance of $900. The standard pay rate is $8, while
the company paid at the rate of $9. The direct labour rate variance was $ 2,500
Caculate the budgeted hours

Q1/299_WB_C9

25
Q4 v Q5/ 75_C9

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Q6, 7 v 8/76_C9

27
Q9/76_C9

28
Q11/76_C9

29
Q12/76_C9

Q13/76_C9

Q21/78_C9

30
Q22/78_C9

Q28/78_C9

31
 Q23/78_C9

R. Suppose that the variable production overhead cost of product X is as follows.

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- 2 hours at $ 1.50 = $ 3 per unit
- During period, 400 units of product X were made.The labour force worked 760 hours. The variable
overhead cost was $ 1,672
Required:
1/ The variable overhead total variance

2/ The variable production overhead expenditure variance

3/ The variable production overhead efficiency variance

WORK EXAMPLE/ 292_C9

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Q2/299_WB_C9

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Q7/301_WB_C9

Q8/301_WB_C9

Q9/301_WB_C9

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