Income method alternatives. (From ACCA Financial Information for June 2005) (30
ID: 2472090 • Letter: I
Question
Income method alternatives. (From ACCA Financial Information for June 2005) (30 minutes] ation for Managemen ement, Part run decision-making, and why? Archibald Ltd manufactures and sells one product. Its budgeted profit state first month of trading is as follows profit statement for t 7.14 216000 Sales (1200 units at £180 per unit) Less Cost of sales: 180000 Production (1800 units at £100 per unit) Less Closing stock (600 units at £100 per unit) (60000) Gross proft Less Fixed selling and distribution costs Net profit (120,000) 96000 (41 000) 55,000Explanation / Answer
1a.
Calculation of variable production cost per unit :
(Using High low method)
Production Cost
Production Units
High
£ 188,000
2000
Low
£ 180,000
1800
Difference
£ 8,000
200
Variable production cost per unit = 8000 / 200 =
£ 40
Per unit
1b.
Calculation of Total Monthly fixed production cost:
Total Production cost for 2000 Units =
£ 188,000
Less: Variable Production costs = (2000 Units* 40)
-£ 80,000
Total Monthly fixed production cost =
£ 108,000
2a.
Calculation of total contribution Margin
(Using marginal costing principles)
Sales (1200 Units * 180 Per unit)
£ 216,000.00
Less: Variable Costs (1200 Units * 40)
-£ 48,000.00
Total contribution Margin =
£ 168,000.00
2b.
Calculation of Net Profit:
(Using marginal costing principles)
Sales (1200 Units * 180 Per unit)
£ 216,000.00
Less: Variable Costs of Goods sold (1200 Units * 40)
-£ 48,000.00
Total contribution Margin =
£ 168,000.00
Less: Fixed Production Costs
-£ 108,000.00
Less: Fixed Selling and Distribution Costs
-£ 41,000.00
Net Profit
£ 19,000.00
1a.
Calculation of variable production cost per unit :
(Using High low method)
Production Cost
Production Units
High
£ 188,000
2000
Low
£ 180,000
1800
Difference
£ 8,000
200
Variable production cost per unit = 8000 / 200 =
£ 40
Per unit
1b.
Calculation of Total Monthly fixed production cost:
Total Production cost for 2000 Units =
£ 188,000
Less: Variable Production costs = (2000 Units* 40)
-£ 80,000
Total Monthly fixed production cost =
£ 108,000
2a.
Calculation of total contribution Margin
(Using marginal costing principles)
Sales (1200 Units * 180 Per unit)
£ 216,000.00
Less: Variable Costs (1200 Units * 40)
-£ 48,000.00
Total contribution Margin =
£ 168,000.00
2b.
Calculation of Net Profit:
(Using marginal costing principles)
Sales (1200 Units * 180 Per unit)
£ 216,000.00
Less: Variable Costs of Goods sold (1200 Units * 40)
-£ 48,000.00
Total contribution Margin =
£ 168,000.00
Less: Fixed Production Costs
-£ 108,000.00
Less: Fixed Selling and Distribution Costs
-£ 41,000.00
Net Profit
£ 19,000.00