A manufacturing business has been running for 3 years. It has used the marginal cost approach and FIFO (First in
First Out) to value the stock in the financial statements. The manager is now interested to know what the recorded profits would have been if absorption costing had been used instead. Relevant information is presented below:
a) Total fixed indirect production cost is £64,000 per year.
b) Direct labour costs over each of the three years were £16 per unit.
c) Direct material costs over each of the three years were £12 per unit.
d) Variable expenses which vary in direct ratio to production were £20 per unit.
e) Sales were: Year 1: 36,000 units; Year 2: 40,000 units; Year 3: 60,000 units. The selling price remained constant at £70 per unit.
f) Production is at the rate of: Year 1: 40,000 units; Year 2: 48,000 units; Year 3: 51,000 units.
Other overheads are as follows:
g) Selling and Distribution overheads are: Year 1: £10,000; Year 2: £10,500, Year 3: £11,000
h) Administrative overheads £15,000 for each year
i) Interest expense: Year 1: £1,000; Year 2: £1,250; Year 3: £1,500
j) please help me in a statement for each of the three years comparing both methods using the information below
Please help me in the income statements using marginal and absorption costs for the three years (6 income statements in total) with calculations / workings of closing stock