Reference no: EM132462790
Problem - Happy Sdn Bhd is involved in manufacturing a single product, Toffee, which is sold at RM45 per unit. The following is budgeted cost data:
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RM per unit
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Direct materials
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8.00
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Direct labour
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3.50
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Variable production overhead
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2.50
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Variable selling and distribution costs
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3.00
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Fixed production overhead costs are budgeted at RM550,000 per annum. Normal production level is 100,000 units per annum. The predetermined overhead absorption rate is computed based on normal production units. The actual production for the year ended 30 November 2018 was 120,000 units. The store ledger card of the business shows closing stock balance of 25,000 units as at 31 October 2019.
The summarized income statement for the year ended 31 October 2019 below was prepared using marginal costing:
RM'000
Sales revenue 4,500
Less: Variable costs (1,700)
Contribution margin 2,800
Less: Fixed costs
Production overhead 550
Administrative expenses 220
Selling and distribution expenses 200 (970)
Net profit 1,830
REQUIRED -
i. Calculate production cost per unit under marginal and absorption costing methods.
ii. Income statement for the year ended 31 October 2019 based on the Absorption Costing approach. Your answer must clearly show the opening and closing stock values.
iii. Justify which approach you will use if the report required for your company to get loan from the bank.
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