Problem: Gerry Hatrick Ltd manufactures and sells video cameras. The unit selling price and production costs are as follows:
Selling price 800
Direct materials 100
Direct labour 90
Variable overheads 50
Fixed overheads 160
The fixed production overheads assume a monthly production of 2000 units.
The following monthly costs are also incurred:
Fixed administrative overheads $80000
Variable sales overheads 10% of sales value
Fixed sales overheads $120000
Q1. During the month of September 2005 a total of 2400 units were produced, of which 1800 were sold. There was no stock on hand at the beginning of September.
(a) Prepare profit statements for September 2005 using
(i) Absorption costing
(ii) Marginal costing
(b) Explain why the profit found when using absorption costing differs from the profit found in marginal costing.
(c) Calculate the break-even point for September 2005 in sales volume.