Kingsman Ltd (Kingsman) started business on 1 September manufacturing a single product, the A356.

The budgeted production cost per unit of the A356 is as follows:

£
Variable materials 78
Variable labour 12
Variable production overhead 6
Fixed production overheads 18
The budget showed production and sales for the first six months of 1,200 units. The budgeted selling price is £170 per unit.
The budgeted selling, distribution and administration costs are as follows:
Fixed = £36,000 per annum
Variable = £2.50 per unit
Inventory at the end of September was 20 units of the A356. In October Kingsman sold 150 units and manufactured 155 units. Budgeted fixed costs are incurred evenly per month. Actual costs and the selling price were as
budgeted except for the fixed selling, distribution and administration costs, which were 12.5% lower than budgeted.

Requirement
2.1 Calculate the profit or loss for October using both absorption costing and marginal costing.
Enter costs as negative values.
Absorption Marginal
£ £ £ £
Sales
Variable production costs
Fixed production costs absorbed
Opening inventory
Closing inventory
Production cost of sales
Under/over absorption
Variable selling, administration and distribution
Fixed selling, administration and distribution
Fixed production costs
Profit/loss

2.2 In the second six months of the year Kingsman plans to introduce the B786, a deluxe version of the A356. The budgeted total absorption cost for the B786 is £420 per unit including £40 per unit for fixed overheads. In
order to set a selling price Kingsman plans to use a margin of 25% on the absorption cost.

Requirements
Select the correct answer.
If there is no inventory of the B786 at the end of the first six months of production, the profits calculated under marginal costing will be those calculated under absorption costing.

• Higher than
• Lower than
• The same as
2.3 Calculate the percent mark-up for the B786 using marginal costing and the planned selling price.
%
Total: 20 marks