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RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine profits and inventory values. The budgeted production cost...

      

RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine profits and inventory values. The budgeted production cost per unit is as follows:
sh.
Direct labour 3 hours at sh.6 per hour 18
Direct materials 4 kgs at sh.7 per kg 28
Fixed production overhead 20
66

Additional information:
1. Normal output volume is 16,000 units per year and the volume is used to establish the fixed overhead absorption rate for each year.
2. The costs relating to sales, distribution, and administration are as follows:
Variable 20% of sales value
Fixed Sh.180,000 per year
3. There were no units of finished goods inventory at 1 October 2021. Fixed overhead expenditure is spread evenly throughout the year
4. The selling price per unit is sh.140.
5. For the two six-monthly periods, the number of units to be produced and sold were budgeted as follows:
Six months ending31 March 2022 Six months ending 30 September 2022
Units Units
Production 8,500 7,000
Sales 7,000 8,000
6. RH Ltd. is considering whether to abandon absorption costing and used marginal costing instead for profit reporting and inventory valuation.

Required:
(a) Statement of profit or loss for each of the six-month periods using:
(i) Marginal costing.
(ii) Absorption costing.
(b) A statement reconciling the profits as per the marginal costing and absorption costing in (a) above.

  

Answers


Francis
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francis1897 answered the question on November 14, 2022 at 08:44


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