Reference no: EM132524192
Absorption and marginal costing
Max Ltd. Is drafting a budget on the basis of following data:
Direct material $ 10 per unit
Direct labour $5 per unit
Variable production expenses $ 8 per unit
Fixed production expenses $ 27,000 per month
Normal output 9,000 units per month 90% capacity
Sales price $ 30 per unit
In order to build up inventory in anticipation of an increase in demand which is expected later in year, production is to exceed sales in first three months of the year as follows:
Month 1 Month 2 Month 3
Production 6,500 9,000 10,000
Sales 5,000 8,500 9,500
Required:
Question 1: Prepare two profit statements. Each in comparative columnar form, covering each of three months
a. On a marginal costing basis
b. On a full absorption costing basis
Question 2: Reconcile the difference in profits for each month.