Problem:
A company has the following for both June and July
Per Unit : Sales Price 50
Direct Cost Material 18
Direct Wages 4
Variable Production Overhead 3
Per Month: Fixed Production Overhead 99000
Fixed Selling Expenses 14000
Fixed Administration costs 26000
Variable selling expenses equal 10% of sales value
Normal capacity was 11,000 units per month
There was no opening stock on the 1st of June
June July
Sales 10000 12000
Production 12000 10000
i) Prepare separate profit statements for the months of June and July using
a) Marginal costing
b) Absorption costing
ii) Explain the different circumstances in which the contrasting methods are appropriate.