(5)

1. Calculate the fixed production cost absorbed by zest if absorption cost is used.

Budgeted fixed production cost 160,000

Absorption rate (160,000/800) 200

For the 1st quarter (200*220) 44,000

2. Calculate the over/under overhead during the year.

Absorption Fixed production overhead cost 44,000

Actual fixed production overhead cost (160,000/4) 40,000

Overhead over recovered 4,000

 (6)

3. Calculate the profit using the absorption costing

Sales (160*2,000) 320,000

(-) Cost of Sales

Variable production cost (640,000/800=800) (800*220) 176,000

Fixed production overhead absorbed (160,000/800=200) (200*220) 44,000

(+) Opening stock - -

(-) Closing stcok (800+200=1,000) (1000*60) (60,000)

Cost of goods sold 160,000

(-) Adjustment for over absorption of factory overheads (4,000) (156,000)

(-) Selling and distribution expenses

Variable selling and distribution (320,000/800=400) (400*160) (64,000)

Fixed selling and distribution (240,000/4) (60,000) (124,000)

.
Net Profit 40,000
 (7)

4. Calculate the profit using the Marginal Costing

Sales (160*2,000) 320,000

(-) Cost of Sales

Variable production cost (640,000/800=200) (800*220) 176,000

(+) Opening stock - -

(-) Closing stcok (800*60) (48,000)

Veriable cost of goods sold 128,000

(+) Variable selling and distribution (320,000/800=400) (400*160) 64,000 192,000

Contribution 128,000

(-) Fixed cost

Production fixed cost (160,000/4) 40,000

Fixed selling and distribution cost (240,000/4) 60,000 100,000

Net Profit 28,000