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Mary commenced business in January 2019, manufacturing a single product. At the end of 2019 she calculated her profit using the absorption costing method and was pleased with the profits that were realised. However, she recently read that preparation of the income statement according to the marginal costing method would be more beneficial to her. She also learnt that if there are opening or closing inventories, then the profits calculated using the two methods would be different. She forecasted her sales and costs for July to December 2021 and wanted to undertake cost-volume-profit (CVP) analysis since it made use of the marginal costing approach with which she was impressed.

Mary commenced business in January 2019, manufacturing a single product. At the end of 2019 she calculated her profit using the absorption costing method and was pleased with the profits that were realised. However, she recently read that preparation of the income statement according to the marginal costing method would be more beneficial to her. She also learnt that if there are opening or closing inventories, then the profits calculated using the two methods would be different. She forecasted her sales and costs for July to December 2021 and wanted to undertake cost-volume-profit (CVP) analysis since it made use of the marginal costing approach with which she was impressed.

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter8: Inventories: Special Valuation Issues
Section: Chapter Questions
Problem 2MC: Moore Company uses the LIFO cost flow assumption and carries Product A in inventory on December 31,...
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Prepare the income statement of Mary's manufacturers the year ended 31 December 2020 using the:

1. Marginal costing method 

2. Absorption costing method 

Mary commenced business in January 2019, manufacturing a single product. At the end of 2019 she calculated her profit using the absorption costing method and was pleased with the profits that were realised. However, she recently read that preparation of the income statement according to the marginal costing method would be more beneficial to her. She also learnt that if there are opening or closing inventories, then the profits calculated using the two methods would be different. She forecasted her sales and costs for July to December 2021 and wanted to undertake cost-volume-profit (CVP) analysis since it made use of the marginal costing approach with which she was impressed.
Transcribed Image Text:Mary commenced business in January 2019, manufacturing a single product. At the end of 2019 she calculated her profit using the absorption costing method and was pleased with the profits that were realised. However, she recently read that preparation of the income statement according to the marginal costing method would be more beneficial to her. She also learnt that if there are opening or closing inventories, then the profits calculated using the two methods would be different. She forecasted her sales and costs for July to December 2021 and wanted to undertake cost-volume-profit (CVP) analysis since it made use of the marginal costing approach with which she was impressed.
INFORMATION The following information was extracted from the accounting records of Mary's Manufacturers for the years ended 31 December 2020 and 31 December 2019: 31 December 2020 31 December 2019 Units R Units R Sales for the year 3 500 3 700 666 000 Selling price per unit 200 180 Production for the year 4 100 4 000 Finished goods at beginning of year ? Nil Variable manufacturing costs per unit 50 45 Variable selling and administrative costs per unit 25 24 Fixed manufacturing costs per year 45 100 36 000 Fixed selling and administrative costs per year 24 000 25 000 Additional information 1. Mary's Manufacturers uses the FIFO method for the valuation of inventory. 2. The increase in the fixed manufacturing costs is due to a new rental agreement in respect of the factory.
Transcribed Image Text:INFORMATION The following information was extracted from the accounting records of Mary's Manufacturers for the years ended 31 December 2020 and 31 December 2019: 31 December 2020 31 December 2019 Units R Units R Sales for the year 3 500 3 700 666 000 Selling price per unit 200 180 Production for the year 4 100 4 000 Finished goods at beginning of year ? Nil Variable manufacturing costs per unit 50 45 Variable selling and administrative costs per unit 25 24 Fixed manufacturing costs per year 45 100 36 000 Fixed selling and administrative costs per year 24 000 25 000 Additional information 1. Mary's Manufacturers uses the FIFO method for the valuation of inventory. 2. The increase in the fixed manufacturing costs is due to a new rental agreement in respect of the factory.
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