Question 1: FoxPro Plc manufactures a single product that it sells at a standard price of Rs 100 per unit. The cost structure is as shown below:
Rs
A) Standard variable production cost per unit 16
B) Standard variable selling cost per unit 10
C) Total fixed production cost per month Rs240,000 (20,000 units of production are planned per month)
D) Total fixed non-production costs Rs 300,000 per month.
In Month 1, when the opening stock is 2,000 units, production of 20,000 units is planned and sales of 16,000 units are expected.
Required:
a) What would be the total profit for month 1, by using:
• Absorption costing
• Marginal costing
b) In brief describe why the profit figures differ between the two costing methods.
Question 2: XYZ Company manufactures and markets a specific product A. The production costs per unit of product A are as shown below:
Rs
Raw materials 2
Direct labor 6
Variable overhead 2
Fixed overhead 4
14
The given information is as well available:
a) Budgeted output – 50,000 units
b) Fixed overhead – Rs 200,000
c) Normal selling price Rs 18 –Actual Demand is only 40,000 units
The company receives a special order to sell the additional 10,000 units at a price of Rs 12.
Required:
a) Should the company accept the offer or not?
b) What are the other non-financial factors which require to be considered before taking a decision apart from financial elements?