Porter Ltd began operation on 1 January, and achieved the following results for the year:

Sales ………………………………………….36 000 units

Selling price ……………………………………$45 per unit

Manufacturing costs:

Direct material …………………………………$12 per unit

Variable overhead ……………………………..$6 per unit

Fixed manufacturing costs:

Variable ……………………………………….$3 per unit sold

Fixed ………………………………………….$30 000

Production …………………………………….37 500 units

Required:

1. Prepare an absorption costing income statement for Porter Ltd.

2. Prepare a variable costing contribution margin statement for Porter Ltd.

3. Reconcile the differences between the profits under the two statements by:

(a) Identifying the areas where the statements differ.

(b) Using the short-cut method.



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