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Accounting of Management Accounting

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Added on  2020-11-12

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TASK 1 P3 Solution of marginal and absorption costing | | | | | | INCOME STATEMENT FOR YEAR 1 | |(using marginal costing approach)| | | | | | | |ITEMS |Units|P.U |Amount |Amount | |Sales |36000|70| |2520000 | |Marginal cost of sales| | | | |Opening stock| | | | |Add: variable production cost | | | | |direct material |

Accounting of Management Accounting

   Added on 2020-11-12

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Management Accounting
Accounting of Management Accounting_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK...............................................................................................................................................1P3 Calculation of marginal and absorption costing................................................................1P4-Advantages and disadvantage of budgeting control planning tools.................................7CONCLUSION ...............................................................................................................................8REFERENCES .............................................................................................................................10
Accounting of Management Accounting_2
INTRODUCTIONManagement accounting is a process of preparing financial report and accounting of thecompany. It is usually used for internal management and it is not regulated by any law. It issignificant tool that supports managers of company to make correct decision. Present report isbased on ABC ltd company which is engaged in chair manufacturing and the business is runningfor 3 years. Report will explain budgeting control tools which are very useful for evaluate actualperformance of firm. This report also includes marginal costing and absorption costingcalculations and interpretation of net operating income is added in study (Chi and Ho, 2017).TASKP3 Calculation of marginal and absorption costing INCOME STATEMENT FOR YEAR 1(using marginal costing approach) ITEMSUnitsP.UAmountAmountSales36000702520000Marginal cost of salesOpening stockAdd: variable production costdirect material4000012480000direct labour4000016640000variable expenses4000020800000total variable cost A40000481920000Less: closing stock end of the year B(opening stock units + units produce -unit sold)400048192000Marginal cost of sales(A-B)1728000fixed indirect production cost (B)64000Gross profit sales: (MCOS-fixed production cost)728000Selling and distribution overhead10000Admin overhead1500025000Profit before interest & Tax (PBIT)703000Interest expenses10001000profit before tax (PBIT- interest)702000Tax @19%133380net profit568620Interpretation for first year:
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From the above solution it is found that the number of unit sold is 36000 thus, salesamount is 2520000 pound. Closing stock amount 4000 pound deducted from all variable cost inorder to get marginal cost amount. Gross profit sales are 1728000. After getting gross profitcompany has to calculate profit before interest and tax by deducting selling and adminoverheads. Thereafter interest amount and tax @19% then finally net profit of the first year was598620 pound. From the above table it can be interpreted that expenses are very high thus netprofit is low. INCOME STATEMENT FOR YEAR2(using marginal costing approach)ItemsUnitsP.UAmountAmountSales40000702800000Marginal cost of salesOpening stock4000Add: variable production costdirect material4800012576000direct labour4800016768000variable expenses4800020960000total variable cost A48000482304000Less: closing stock end of the year(B)(opening stock units + units produce -unitsold)1200048576000Marginal cost (A-B)1728000fixed indirect production cost 64000Gross profit: (MCOS-fixed productioncost)1008000Selling and distribution overhead10500Admin overhead1500025500Profit before interest & Tax(PBIT)982500Interest expenses12501250profit before tax(PBIT- interest)981250Tax @19%186437.5Net profit794812.5Interpretation for second year -
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