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4 marksMarginal and Absorption Costing

CAPE Accounting Unit 2 · 2011 · Paper 2 · Question 2(a)(ii)

Data for Lawson Bravo Company's product, Oildown, in its first year: Sales price per unit 30; Variable selling and administrative expenses per unit 2; Variable production cost per unit 4; Fixed manufacturing costs per unit produced 4; Fixed selling and administrative cost per unit sold $3; Units manufactured 5 000; Units sold 3 800.

Assuming that Lawson Bravo Company uses a marginal costing system, compute its operating income for the year.

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Other parts of this question

  1. 2(a)(i)Assuming that Lawson Bravo Company uses an absorption costing system, compute its operating income for the year.[4 marks]
  2. 2(a)(iii)Reconcile the operating income figures computed in parts (a)(i) and (ii) above.[2 marks]
  3. 2(b)Prepare a production report for Belmopan Company.[15 marks]
  4. 2(c)(i)State THREE fundamental differences between activity-based costing and traditional costing systems such as process costing.[6 marks]
  5. 2(c)(ii)Explain how cost drivers are selected in activity-based costing systems.[4 marks]

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