15 COSTING Sample Question €


Sales (40,000) Direct Materials Direct Labour


Factory Overheads


Administration Expenses Selling Expenses


68,000 66,000 50,000 60,000


25,000 269,000 131,000


The materials, direct labour and 20% of factory overheads are variable costs. Apart from the sales commission of 64% of selling expenses, selling and administration expenses are fixed.


You are required to: (a) Prepare a Cost Classification Statement and a Marginal Costing Statement. [16 Marks] (b) Find the company’s Break Even in units and in sales value. [10 Marks] (c) Draw Wade Ltd’s Break Even chart, showing the Break Even Point and Margin of Safety at 40,000 units. [15 Marks]


(d) Illustrate on the graph the profit or loss at 30,000 units. [5 Marks]


Sample Solution (a)


Direct Materials Direct Labour


Factory Overheads


Administration Expenses [1] Selling Expenses


€ 400,000 Break Even Chart and Cost Classification


Wade Ltd produces a single product. The company’s Profit and Loss Account for the year ended 31/12/2012, during which 40,000 units were produced and sold, was as follows:


Cost Classification Fixed Variable €


€


[1] [1]


[1] 40,000 [1] 60,000


[1] 9,000 [1]


68,000 66,000 10,000


16,000 109,000 160,000


Marginal Costing Statement €


Sales


less Variable Costs Direct Materials Direct Labour


15


[1] [1]


Factory Overhead (50,000 @ 20%) [1] Sales Commission (25,000 @ 64%) [1]


Contribution


less Fixed Costs Factory Overhead (50,000 @ 80%) [1] Administration Overhead


[1]


Selling Expenses (25,000 @ 36%) Net Profit


40,000 60,000


[1] 9,000 109,000 131,000


68,000 66,000 10,000 16,000


[1]


160,000 240,000


4.00 6.00


[1]


50,000 @ 20% 25,000 @ 64%


[2] [3]


Break Even in Sales Value 18,167 × 10 = €181,670 [2]


400,000


€ per Unit 10


[3]


50,000 @ 80% (b) Break Even in Units


244


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