QUESTION 1 Kiwenkira & Son Ltd makes and sells a single product marketed under a brand name Kiwetonic for the West African sub region and has total production capacity of 30,000 units per month. The budget for January 2020 contained the following information: Normal capacity (Units) 27,000 Variable costs per unit: Production (GH¢) 110 Selling and distribution (GH¢) 25 Fixed overheads: Production (GH¢) 756,000 Selling and administration (GH¢) 504,000 The actual operating data for January 2020 is as follows: Production 24,000 units Sales at GH¢250 per unit 22,000 units Opening inventory of finished goods 2,000 units During the month of January 2020, the variable factory overheads exceeded the budget by GH¢120,000. Required: Prepare profit statement for the month of January using: Marginal costing: and Absorption costing techiques Reconcile the difference in profits (if any), under the two techeques
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
QUESTION 1
Kiwenkira & Son Ltd makes and sells a single product marketed under a brand name Kiwetonic for the West African sub region and has total production capacity of 30,000 units per month.
The budget for January 2020 contained the following information:
|
Normal capacity (Units) |
27,000 |
|
Variable costs per unit: |
|
|
Production (GH¢) |
110 |
|
Selling and distribution (GH¢) |
25 |
|
Fixed |
|
|
Production (GH¢) |
756,000 |
|
Selling and administration (GH¢) |
504,000 |
The actual operating data for January 2020 is as follows:
|
Production |
24,000 units |
|
Sales at GH¢250 per unit |
22,000 units |
|
Opening inventory of finished goods |
2,000 units |
During the month of January 2020, the variable factory overheads exceeded the budget by GH¢120,000.
Required:
- Prepare profit statement for the month of January using:
- Marginal costing: and
- Absorption costing techiques
- Reconcile the difference in profits (if any), under the two techeques
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