Reference no: EM131781238

Question 1 - Sky Marine Ltd undertakes a range of work, including making sails for small sailing boats on a made-to-measure basis. The following costs are expected to be incurred by the business during next month: $ Direct materials costs 3,000 Direct labour costs 30,000 Depreciation of machinery 3,000 Heating, lighting and power 2,000 Indirect labour cost 9,000 Indirect materials 400 Direct labour time 6,000 hours Machine time 2,000 hours The business has received an enquiry about a sail and it is estimated that the sail will take 12 direct labour hours to make and will require 20 square metres of sail-cloth (which costs $2 per square metre). The business normally uses a direct-labour-hour basis of charging overheads to individual jobs. The production manager has suggested that for this job a machine hour basis of overhead recovery might be more appropriate. The sail will take 5 machine hours.

Question 2 - Regent Inc. manufactures and sells a single product. The following budgeted (assumed to be same as actual) production information is provided in relation to this product: Per unit ($) Selling price 50.00 Direct materials 8.00 Direct labour 5.00 Variable overheads 3.00 Units of production and sales for May and June 2017 are as follows: May June Production 500 380 Sales 300 500 Fixed production overheads are budgeted at $4,000 per month and are absorbed on a unit basis. The normal level of production is budgeted at 400 units per month. Other costs Fixed selling $4,000 per month Fixed administration $2,000 per month Variable sales commission 5% of sales revenue There was no opening inventory at the start of May.

Required:

(a) Do a statement showing the profit figures based on the total absorption costing approach for May and June. Statement showing the profit figures based on the total absorption costing approach for May and June.

(b) Do a statement showing the profits based on a marginal costing approach for May and June.

(c) Reconcile the profits in (a) and (b) above.