Management Accounting

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MANAGEMENT ACCOUNTING

Table of Contents
• Introduction
• Costing Analysis
• Income statement using absorption costing
• Income statement using marginal costing
• Reconciliation of profits
• Analysis
• Conclusion
• References

Introduction
• The presentation does a costing analysis of marginal and absorption costing.
• It uses income statements to analyze the different types of costing.

Costing Analysis
•Selling price=80000/80000 units=£1
•Variable Cost production per unit=52000/80000 units= £0.65
•Fixed cost production per unit=16000/80000 units= £0.2
•Total cost per unit=0.65+0.2=£0.85

Income statement for Quarter 1 and Quarter 2 using absorption costing
Particulars Q1 £ Q1 Q2 £ Q2
Sales 66000 74000
Cost of goods sold
Beginning
inventory
- 10200(0.85*12
000)
Variable
production cost
50700(0.65*7
8000)
42900(0.65*66
000)
Allocated fixed
production cost
15600(0.2*78
000)
13200(0.2*660
00)
66,300 66,300
Less: Ending
Inventory
10200(0.85*1
2000)
3400(0.85*400
0)
56100 62900
Less: under
absorption of
fixed cost
400 2800
Gross Margin 9900 11100
Less: Selling and
administrative
cost
5200 5200
Operating Income 4300 3100

Income statement for Quarter 1 and Quarter 2 using variable costing
Particulars Q1 £ Q2 £
Sales 66000 74000
Less: Variable costs 50700 42900
Add: Opening stock 0 7800
Less: Closing stock 7800(0.65*12000) 2600(0.65*4000)
COGS 50700-7800=42900 48100(42900+7800-2600)
Contribution 23100(66000-42900) 25900(74000-48100)
Less: Fixed and administration costs 5200 5200
Fixed costs 16000 16000
Net profit 1900 4700

Reconciliation of Profits
Reconciliation of differences in net income
Absorption costing
operating income - Variable costing operating
income = Fixed Production cost in
inventory(ending) - Fixed Production cost in
beginning (inventory)
4,300.00 – 1,900.00
2,400.00 = (0.2*12000 units) – 0
2,400.00
3,100.00 – 4,700.00
(1,600.00) = (0.2*4,000 units) – (0.2*12,000 units)
(1,600.00)

Analysis
• Absorption costing reports higher profits than marginal as costs get distributed over fixed
overheads.
• Variable costing are used for internal reporting and decision-making.
• Absorption costing is used for reporting to external shareholders and for filing of taxes.

CONCLUSION
• It concludes that both absorption as well as marginal costing have their own prominence and used
for different functions.

References