a) Absorption costing method

Paritculars Amount (£)

Direct material 100,000
Direct labour 150,000
Fixed overhead 250,000
Total cost 500,000
Number of units produced 10,000
(units)
Cost per unit under 50
absorption costing

b) Marginal costing

Paritculars Amount (£)

Direct material 100,000
Direct labour 150,000
Total cost 250,000
Number of units produced 10,000
(units)
Cost per unit under 25
absorption costing

Particulars January February

Sales revenue 700,000 560,000
January: 10,000 units @ £70
February: 8,000 pairs @ £70
Less: Cost of sales
Direct material 100,000 100,000
Direct labour 150,000 150,000
Fixed overhead 250,000 250,000
Cost of goods produced 500,000 500,000
Less: Ending inventory - (100,000)
Cost of goods sold (500,000) (400,000)
Profit 200,000 160,000

Particulars January February

Sales revenue 700,000 560,000
January: 10,000 units @ £70
February: 8,000 pairs @ £70
Less: Marginal cost of sales
Direct material 100,000 100,000
Direct labour 150,000 150,000
Cost of goods produced 250,000 250,000
Less: Ending inventory - (50,000)
Cost of goods sold (250,000) (200,000)
Contribution 450,000 360,000
Fixed overhead (250,000) (250,000)
Profit 200,000 110,000

Particulars Amount (£) Amount (£)

Profit according to marginal co 200,000 110,000
Add: Under allocation of 50,000
fixed cost in ending inventory
[(50-25) x 2,000]
Profit according to absorption 200,000 160,000