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Question 1 Absorption and Variable costing

Rove Ltd manufactures banana chips. Last year 2021 it produces 50,000 chips but only sold 45,000 chips. Presented below is the cost structure of Rove Ltd.

VC per banana chips $55.20 $13.50

Total FC for the year $638,000 $456,000

Manufacturing cost Selling & administrative

Rove Limiteds gross margin in 2021 was $1 889 000 and its contribution margin was $1 855 700

Required

Prepare a absorption income statement (show your working out) [10 marks]

Prepare a variable costing income statement. (show your working out) [10 marks]

Explain the difference or changes in operating net income between absorption and variable costing. (Between 10 to 20 words only). [5 marks]

Question 2 Process Costing Equivalent Units

Point-Cruz Ltd has two departments the Packaging Department and Finishing Department. Finishing department had 10,000 incomplete units in its beginning Work-in-Process Inventory which were 100% complete as to materials and 40% complete as to conversion costs. 20,000 units were received from the Packaging Department. The ending Work-in-Process Inventory consisted of 5,000 units that were 50% complete as to materials and 30% complete as to conversion costs. The Finishing Department uses weighted average process costing.

Required

How many units were completed and transferred-out during the period? [5 marks]

What are the equivalent units of production for the materials costs during the period? [5 marks]

What are the equivalent units of production for the conversion costs during the period? [5 marks]

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