Illustration 1
From the information given below, you are required to prepare profit statements for the year based on (i) Absorption Costing (ii) Marginal Costing.
CMR Ltd. produces a single product, which is bottled and sold in cases. The normal annual level of operations is 18,000 cases on which the production fixed overhead absorption is based. Data for the last accounting year were as follows:
Production 20,000 cases; sales 16,000 cases.
There was no opening stock of finished goods and the work-in-progress stock may be assumed the same at the end of the year as it was at the beginning of the year.
Solution
Profit Statement (under Absorption Costing Method)
|
Particulars
|
Amount (Rs.)
|
Amount (Rs.)
|
|
Sales 16,000 units @ Rs.30 per case
|
|
4,80,000
|
|
Less: Production cost 20,000 cases @ Rs.20
|
4,00,000
|
|
|
Less: Closing stock 4,000 cases @ Rs.20
|
80,000
|
|
|
|
3,20,000
|
|
|
Less: Rectification of over absorption of 2000 units @ Rs.3 per unit
|
6,000
|
3,14,000
|
|
|
|
1,66,000
|
|
Less: Selling & Administrative cost
|
|
|
|
Fixed
|
25,000
|
|
|
Variable @ 15% on sales
|
72,000
|
97,000
|
|
Profit
|
|
69,000
|
|
Note:
|
Fixed cost per unit = 54000/18000 = Rs.3
|
|
|
|
Production cost per unit = Rs.7 + Rs.6 + Rs.4 + Rs.3 = Rs.20
|
Profit Statement (under Marginal Costing Method)
|
Particulars
|
Amount (Rs.)
|
Amount (Rs.)
|
|
Sales 16,000 cases @ Rs.30 per case
|
|
4,80,000
|
|
Less: Variable Cost 20,000 @ Rs.17 (Rs.7 + Rs.6 + Rs.4)
|
3,40,000
|
|
|
Less: Closing Stock 4,000 @ Rs.17
|
68,000
|
|
|
|
2,72,000
|
|
|
Add: Variable Selling & Administrative Cost
|
72,000
|
3,44,000
|
|
Contribution
|
|
1,36,000
|
|
Less: Fixed Cost:
|
|
|
|
Production
|
54,000
|
|
|
Selling and Administration
|
25,000
|
79,000
|
|
Profit
|
|
57,000
|
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