Kalimonde Ltd commenced business on 1st march making one product only. The standard cost of which is as follows:

Direct material 8
Direct labour 5
Variable production overhead 2
Fixed production overhead 5
Total 10

The fixed production overhead figure has been calculated on the basis of normal output of 36,000 units per annum. You are to assume that there was no expenditure or efficiency variances and that budgeted fixed expenses are incurred evenly over the year. March and April are to be taken as equal months.
Selling, distribution and administrative expenses are:
Fixed T.shs 120,000 per annum
Variable 15% of sales value
The selling price per unit is T.shs 35 and the number of units produced and sold was:-

March April
(units) (units)
Production 2,000 3,200
Sales 1,500 3,000

You are required to:

  1. Prepare income statement for the month of March and April using
    1. Marginal costing
    2. Absorption costing
  2. Prepare a reconciliation of profit or loss figures given in your answers to part (a) i&ii accompanied by brief explanation.

  • Updated: 18 Jul 20
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  • Attempts: 995
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  • Correct: 403

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Contribution Margin for March, under Marginal Costing:

The following data were taken from the records of Bushiri Manufacturing Co. The company manufactures single product. The data relate to the company's first year of operations is as follows.

Units produced: 40,000
Units sold: 37,500

Variable cost per unit:

Direct material TZS 5,000
Direct labour TZS 3,000
Variable overhead TZS 1,400
Variable selling cost TZS 1,200
Selling price per unit TZS 12,000

Fixed costs:

Selling and administratives TZS 75,000,000
Manufacuring TZS 50,000,000
  1. Prepare a statement showing profits for Kidaganda Engineering using:
    1. Marginal Costing
    2. Absorption Costing
  2. Prepare a statement reconciling the profits reported by the two methods above.

  • Updated: 18 Jul 20
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  • Attempts: 814
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  • Correct: 300

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Contribution Margin, under Marginal Costing:

A company has the following costs for its single product, based on planned production and sales of 46,000 litres in a period:

T.shs per litre
Prime costs 520
production overhead-all fixed 280
Non-production overhead:
-Variable 65
-Fixed 170
Total 1,035

Actual production and sales in the period were:

Production 46,000 litres
Sales 45,600 (at Tshs 1,200 per litre)

There was no finished stock at the beginning of the period. Variable costs per litre and total fixed costs in the period were as planned. Variable non-production overheads vary in total with the number of litres sold.


  1. Prepare a profit statement for the period using absorption costing.
  2. Explain fully why, and calculate by how much, the profits for the period would be different if marginal costing was used instead.

  • Updated: 18 Jul 20
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  • Attempts: 231
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  • Correct: 64

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Contribution Margin, under Marginal Costing:

Serengeti Meat Ltd. started business on 1st January 2010 and incurred the following costs during the first three years. Year ended 31st December

2010 2011 2012
T.shs T.shs T.shs
Direct material 60,000 49,900 52,200
Direct labour 48,000 44,000 45,000
Variable manufacturing overhead 24,000 30,000 40,000
Fixed manufacturing overhead 40,000 40,000 40,000
production each year (Units) 16,000 14,000 14,000
Sales each year (Units) 14,000 14,000 15,000

Sales during the first three years were at T.shs 20 per unit.
Variable selling expenses has been 5% of sales value in all years.
The budgeted production was 16,000 units every year.

  1. prepare the statement showing the profit for each of the three years is the company used:
    1. Marginal costing
    2. Absorption costing
  2. Prepare reconciliation of profits.
  3. Advise the company of the advantages and disadvantages of each method.

  • Updated: 18 Jul 20
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  • Attempts: 299
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  • Correct: 98

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Closing stock for 2012, under Marginal costing:

The following information relates to product J for quarter 3 which has just ended:

Production Sales Fixed overhead Variable cost
(Units) (Units) (T.shs'000) (T.shs'000)
Budget 40,000 38,000 300 1,800
Actual 46,000 42,000 318 2,070

Selling price of product J is T.shs 72 per unit.

The fixed overheads were absorbed at a predetermined rate per unit.
At the beginning of quarter 3 there was an opening stock of product J of 2,000 units, valued at T.shs 25 per unit variable cost and T.shs 5 per unit fixed overheads; Using:

  1. Calculate fixed overhead absorption rate per unit for the last quarter and present profit statements using FIFO (First In First Out).
    1. Marginal costing
    2. Absorption costing
  2. Reconcile and explain the difference between the profits or losses.
  3. Using the same data, present similar statements using AVECO (Average costs) method of valuation, reconcile the profits or loss figures, and comment briefly on the variation between profits or losses.

  • Updated: 18 Jul 20
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  • Attempts: 2103
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  • Correct: 1108

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Contribution Margin, under Marginal Costing:

Majariwa Motors Limited assembles and sells motor spare parts. It uses an actual costing system, in which unit costs are calculated on a monthly basis. Data relating to the month of March, 2018 is as given below:-

Particulars: Units Shs.
Opening inventory 150
Production 400
Sales 520
Variable Cost Data:
Manufacturing costs per unit produced shs. 10,000
Distribution costs per unit sold 3,000
Fixed Cost Data:
Manufacturing costs 2,000,000
Marketing costs 600,000

The selling price per motor spare part is shs. 24,000.

  1. Prepare an Income Statement for Majariwa Motors Limited under:-
    1. Variable costing; and
    2. Absorption costing
  2. Clearly explain the differences between (a) (i) and (ii) above for the month of March

  • Updated: 18 Jul 20
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  • Attempts: 89
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  • Correct: 18

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Contribution Margin, under Marginal Costing:

The Management of the Company intended to have two income statements, one based on variable costing and another based on absorption costing for decision purposes. In order to prepare these statements, the following information was assembled and handled to you for necessary action:

  1. Opening stock at the beginning of period consisted of 25,000 finished units, and 5,000 units in process that were 100% complete with respect to raw materials , and 20% complete with respect to conversion.
  2. During the operating period ended, the company transferred 230,000 units to the warehouse. In the same period, the company sold 210,000 units each at Tshs 4,200. The expenditure in the same period, did not differ from expectations except for reasons of operating volume change. The company targeted to produce and sell 240,000 units.

The expenditure in question included the following:

Unit direct material costs 500
Unit direct labor costs 600
Unit variable factory overhead cost 400
Annual fixed factory overhead 99,000,000
Annual fixed administration costs 250,000,000
Annual fixed distribution cost 100,000,000

Prepare two statements of income, one based on variable costing and another based on absorption costing.

  • Updated: 18 Jul 20
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  • Attempts: 16
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  • Correct: 0

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Make sure you have a knowledge on Process Costing before you attempt.
Opening Inventory, under Marginal costing:

A Pharmaceutical company produces formulations having a shelf life of one year. The company has an opening stock of 15,000 boxes on 1st January. It has produced 65,000 boxes as was in the previous year. The total sale for the current year is 75000 boxes.

Costing department has worked out escalation in cost by 25% on Variable Cost and 10% on Fixed Cost for the current year. The actual Fixed Cost for the current year is T.shs. 1,430,000. New price announced for the current year is T.shs.50 per box. Variable Cost of the opening stock is T.shs. 20 per box.

Calculate the profits that would be realized on the sale during the current year under marginal costing approach and absorption costing approach assuming FIFO method is used.

  • Updated: 18 Jul 20
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  • Attempts: 16
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  • Correct: 0

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Contribution Margin, under Marginal Costing:
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