Reference no: EM132939999

Question - A new subsidiary of a group of companies was established for the manufacture and sale of Product X. During the first year of operations 90 000 units were sold at USD20 per unit. At the end of the year, the closing stocks were 8000 units in finished goods store and 4000 units in work-in-progress which were completed regards material content but only half complete in respect of labour and overheads. You are to assume that there were no opening stocks. The work-in-progress account had been debited during the year with the following costs in USD:

Direct Materials, 714,000

Direct Labour, 400,000

Variable Overhead, 100,000

Fixed Overhead, 350,000

Selling and administration costs in USD for the year were:

Selling: 1.50 variable cost per unit;

200,000 fixed cost Administration;

0.10 variable cost per unit;

50,000 fixed cost

The accountant of the subsidiary company had prepared a profit statement on the absorption costing principle which showed a profit of USD11 000. The financial controller of the group, however, had prepared a profit statement on a marginal costing basis which showed a loss. Faced with these two profit statements, the director responsible for this particular subsidiary company is confused.

Required -

Compute the Equivalent units for Materials?

Compute the Cost per unit for labour?

Compute the Closing WIP in USD?

Compute the Cost of sales under absorption costing?

Compute the Contribution margin?

Compute the Net loss under marginal costing?