Income Statement Using Marginal Costing

Test your understanding 2.

Income statement using marginal costing. Marginal costing income statement march. For the year ended 30 june 2016. Using the previous example prepare a marginal costing profit statement for the months of may and june. It is assumed that the company uses the first in first out fifo method for valuing inventories.

Here we will now examine a worked example to illustrate how a statement of profit can be prepared using marginal costing the question zambe ltd produces one product desks each desk is budgeted to require 4 kg of wood at 3 per kg 4 hours of labour at 2 per hour and variable production overheads of 5 per unit. Absorption costing income statement. Calculate the variable production cost direct materials 8 00 direct labour 5 00 variable production o h s 3 00 variable production cost 16 00. Sections a and b below show the marginal and absorption costing income statements respectively for h ltd that manufactures and sells a single product during the years ending 2006 and 2007.

The difference in profits rs. Information for september 2016 was. 4 marginal costing system avoids the problem of selecting a suitable basis for overhead recovery rate. Note that net income before tax is 6 000 lower using marginal costing.

The following information is available for period 3. 1 30 000 is due to difference in valuation of closing stock. Topper plastic makes and sells a single product. Marginal costing income statement is used internally by the managers.

3 marginal costing system is very simple to operate as it does not require complex apportionments of overheads. L o 2 marginal costing income statement. In september 2016 it produced and sold 30000 units. You are required to present income statements using a absorption costing and b marginal costing account briefly for the difference in net profit between the two income statements.

When income statements under absorption costing and marginal costing are. Thus marginal costing is a costing method in which only variable costs are accumulated and cost per unit is ascertained only on the basis of variable. The difference is because fixed manufacturing costs are included in the ending inventory of 51 000 and carried over to the. 5 the departmental performance can be evaluated more scientifically by using marginal costing system.

Fixed production overheads for the period were 105 000 and fixed administration overheads were 27 000. For example managers can use the marginal income statement in carrying out cvp analysis. The marginal costing income statement uses the marginal. Duo ltd makes and sells two products alpha and beta.