WORKINGS: The amount of units in closing stock is calculated as follows: Opening units + Actual units produced – Actual units sold. Therefore closing stock equals = 3,500 + 64,000 + 62,000 = 5,500 units. Under Marginal costing each unit of orange juice will be valued at the variable cost of production. This is calculated as follows: Total variable production cost divided by the number of actual units produced. Variable cost per unit = $3,200,000/64,000 units = $50 per unit. Therefore the value of the closing stock under marginal costing would be $50 x 5,500 unit = $275,000. The value of the opening stock under marginal costing would be the total of opening inventory given minus the value of the fixed production overheads included: Therefore the opening stock = $210,000 - $35,000 = $175,000. Now that all of the workings have been completed the Marginal Costing Income Statement of Aqualead for the year ended 31st March, 2011 can be prepared.
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Now that both the Absorption and Marginal Costing Income Statements have been completed the reconciliation between the Net Incomes calculated under each method can be done. I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!
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AuthorThe author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor. Archives
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