t the end of November 2016, Caribbean Productions Ltd had 700 units of product BMR400 in store. For the month of December 2016, the company budgeted to produce 10,000 units of the product at a selling price of $2,500 each. Fixed administration and selling expenses were expected to be $1,500,000 and $1,000,000 respectively. During the month, the company produced 10,500 units of the product. On December 31, 2016, there were 1,100 units of the product on hand. The following cost information relating to the product was made available at the end of December 2016: Cost per unit Details $ Direct material 400 Direct labour 500 Variable production overheads 300 1,200 Fixed production overheads 150 Total 1,350 Required: What was the contribution per unit of production for December 2016? How many units of Product BMR400 were sold in December 2016? Calculate the profit for December 2016 using the marginal costing approach. Compare the profit result above using absorption costing techniques.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
At the end of November 2016, Caribbean Productions Ltd had 700 units of product BMR400 in store. For the month of December 2016, the company budgeted to produce 10,000 units of the product at a selling price of $2,500 each. Fixed administration and selling expenses were expected to be $1,500,000 and $1,000,000 respectively. During the month, the company produced 10,500 units of the product. On December 31, 2016, there were 1,100 units of the product on hand. The following cost information relating to the product was made available at the end of December 2016:
Cost per unit
|
Details |
$ |
|
Direct material |
400 |
|
Direct labour |
500 |
|
Variable production |
300 |
|
|
1,200 |
|
Fixed production overheads |
150 |
|
Total |
1,350 |
Required:
- What was the contribution per unit of production for December 2016?
- How many units of Product BMR400 were sold in December 2016?
- Calculate the profit for December 2016 using the marginal costing approach.
- Compare the profit result above using absorption costing techniques.
- Explain to management the circumstance that would have to prevail for both methods to produce the same profit figures.
- Reconcile the profits obtained from both product costing approaches.
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