Lahore Ltd commenced operations on 1 June and makes a single product which sells for $14 per unit In the first

Question

July 2,000 (number of units)

Closing inventories:
June 2,000 July 3,000 (number of units)

The fixed manufacturing cost is $18,000 per month and variable manufacturing cost is $5 per unit. There is also a monthly fixed non-manufacturing cost (marketing and administration) of $5,000. There was no work in progress at the end of either June or July.

Required:

a) Calculate operating profit for each month, first using a marginal costing approach and then a full (absorption) costing approach. (10 marks)

b) Explain the reason behind change in profit under variable and absorption costing. (2 marks)

Managerial Accounting