Question

WRITE ON KEYBORD AND SOLV IT QUICK PLEASE

Question 5 (10 Marks) A. Mr. Zakariya the new junior cost accountant joined your company and wants to follow ‘Absorption costing', but you as a senior cost manager rely on Marginal costing”. How would you convince Mr. Zakariya in this situation? Explain. B. Use the below numerical figures of your company's production unit along with the theoretical aspects during the convincing process to Mr. Zakariya about marginal costing. Products Particulars A B С OMR OMR OMR Direct material 30,000 120,000 12,000 Direct wages 36,000 36,000 6,000 Factory overheads: Fixed 12,000 6,000 6,000 36,000 18,000 Variable 15,600 Selling overheads: Fixed 6,000 3,600 2,400 24,000 12,000 Variable 8,400 Sales 128,000 204,000 64,000

Answer 1

Answer is attached below

Answer A The Marginal Costing is a technique where costs to inventory that were incurred when the units of each individual unit was produced, while in case of Absorption Costing all the Budgeted production costs are applied to all units produced. In a period, Overhead costs are charged as expense under the marginal costing. In the case of Absorption method, these costs are applied to products. Below are the benefits of using marginal costing over absorption costing . Constant in nature: Marginal Costs remain the same irrespective of production. These are stable. Effective Cost Control: Here, Both the costs are divided, i.e., Fixed and variable. Fixed are period costs and thus excluded from the product. As such, the management can easily control the marginal cost very effectively. Treatment of Overheads simplified: There is a reduction of over or under-recovery of Overheads costs due to fixed overheads are separated from the production costs. Answer B Income Statement under Marginal Costing Particulars A (OMR) B (OMR) C (OMR) Sales 128,000 204,000 64,000 Less: Variable Costs Direct Material 30,000 120,000 12,000 Direct Wages 36,000 36,000 6,000 Variable Factory Overhead 15,600 36,000 18,000 Variable Selling Overhead 8,400 24,000 12,000 Total Variable Costs 90,000 216,000 48,000 Contribution Margin 38,000 (12,000) 16,000 Less: Fixed Costs Fixed Factory Overheads 12,000 6,000 6,000 Fixed Selling Overheads 6,000 3,600 2,400 Total Fixed Costs 18,000 9,600 8,400 Operating Income 20,000 (21,600) 7,600