Reference no: EM13340658

Dallas Limited

Dallas Limited is a newly formed manufacturer of a specialised part for the oil industry. The managing director, Mr David Gaskell has been informed that for decision making purposes his company could adopt a marginal accounting process or a total absorption process for recording the on-going manufacturing costs of his products. Mr Gaskell does not employ, as yet, a management accountant and has requested guidance from Diverse Management Consultants.

Mr Gaskell has provided Diverse Management Consultants with the following quarterly information and requested that both Marginal Costing Accounts and Absorption Costing Accounts are prepared, together with an explanation of any differences in the financial results.

He would like to have a far better understanding of both concepts and as also requested a full critical appraisal of both methods.

Selling Price of Specialised Part                                            £ 130.00

January to March Sales                                                            70,000

January to March Production                                                    80,000

April to June Sales                                                                    70,000

April to June Production                                                            70,000

Normal Expected Annual Production                                      400,000

Labour Variable Cost                                                              £ 65.00

Materials Variable Cost                                                           £ 30.00

Other Variable Costs                                                               £ 15.00

Variable Selling and Distribution Cost                                     £ 10.00

Fixed Production Overhead Cost per annum                    £ 2,000,000

Fixed Administration Costs per annum                                 £ 240,000

Fixed Selling and Distribution Costs per annum                  £ 100,000