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2 marksMarginal and Absorption Costing

CAPE Accounting Unit 2 · 2009 · Paper 2 · Question 2(a)(vi)

Dominica Company produces a single product. Cost and operational data for August are provided, along with an absorption costing income statement. Finished goods beginning inventory was 2,500 units, production was 17,500 units, and sales were 20,000 units at $60 per unit.

Explain why the variable costing income measurement approach would be attractive to a manager who is interested in projecting her firm's future profit performance.

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Other parts of this question

  1. 2(a)(i)a)Determine the cost of a single unit of the product under absorption costing.[2 marks]
  2. 2(a)(i)b)Determine the cost of a single unit of the product under variable costing.[2 marks]
  3. 2(a)(ii)Prepare an Income Statement for August using the contribution format and variable costing.[8 marks]
  4. 2(a)(iii)Reconcile the variable costing net income figure computed in (a)(ii) and the absorption costing net income figure provided.[2 marks]
  5. 2(a)(iv)Briefly explain the main difference between variable costing and absorption costing in terms of the treatment of costs in the financial statements.[2 marks]
  6. 2(a)(v)Indicate the primary purposes for which variable costing and absorption costing are used.[2 marks]
  7. 2(b)Prepare a production report for the mixing department for June 2008.[15 marks]

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