Reference no: EM132607820

Namibia Enterprises ("NE") produces and sells office printing cartridges to the Namibian market. They have currently developed a toner cartridge named the Envy which is considered to be environmentally friendly as opposed to the other cartridges currently in the market. NE is now planning for the second year production of the Envy.

The budgeted resource requirement to produce 1 unit of the Envy are as follows:

(Note 1)Resource Per unit Direct Material = 100g , (Note 2)Direct Labour = 2 hours , (Note 3) Manufacturing Overhead = 2 hours

the Notes are:

1. The manufacture of the EnvCart requires a special powder that is bought from the local market. The suppliers package the powder into 1 kilogram (kilo) bags. Each 1 kilo bag is priced at N$1 000 in the local market.

2. The manufacture of the EnvCart requires both skilled and unskilled labour. NE has budgeted to pay on average N$25 per hour in the year. This amount includes both skilled and unskilled labour. The company has several work stations such that it is possible for several units of the EnvCart to be worked on concurrently.

3. The company budgeted that the total manufacturing overheads will amount to N$990 000 based on a planned output of 9 000 units. In the previous year the company budgeted for total manufacturing overheads of N$910 000 when their planned production was 8 000 units. The manufacturing overheads for the current year behaved in a similar way as the previous year. It is company policy to allocate ALL manufacturing overheads based on direct labour hours.

4. The selling price for one EnvCart is forecast at N$350 per unit.

5. The selling and administration expenses were budgeted at N$50 per unit.

6. The actual production and sales for the two year period is as follows:

                                   2019                 2020

Production units        9 000           10 000

Sales units              8 500             9 500

7. The actual production costs, administration costs and selling prices were the same as the budgeted figures for the two years under consideration.

Question 1: Calculate the cost per unit of EnvCart applying absorption costing principles

Question 2: Make a profit statement for the year 2020 using:

1.2.1 Absorption costing format

1.2.2 Marginal costing/Variable costing format

Question 3: make a reconciliation statement to reconcile the profit calculated using absorption costing to that calculated using Marginal costing.

Question 4: Explain the reasons why these two methods give different profit figures.