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    Budgeting and Profit Statements

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    A company has the following for both June and July
    Per Unit : Sales Price 50
    Direct Cost Material 18
    Direct Wages 4
    Variable Production Overhead 3

    Per Month: Fixed Production Overhead 99000
    Fixed Selling Expenses 14000
    Fixed Administration costs 26000

    Variable selling expenses equal 10% of sales value
    Normal capacity was 11,000 units per month

    There was no opening stock on the 1st of June

    June July
    Sales 10000 12000
    Production 12000 10000

    i) Prepare separate profit statements for the months of June and July using
    a) Marginal costing
    b) Absorption costing

    ii) Explain the different circumstances in which the contrasting methods are appropriate.

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    Solution Summary

    This problem looks at budgeting, overhead rates and decision making. Profit statements are also prepared.