Cambrige AS and A Level Accounting Notes (9706)/ ZIMSEC  Advanced Accounting Level Notes: Absorption Costing: Statement of Profit or Loss Example

  • We have already looked at the format of a Statement of Profit or Loss under Absorption Costing here
  • It is now time to look at an example

Example Question

Oakwood Manufacturing Ltd started in business on 1 January 20×8 to manufacture furniture to customers’ special requirements. The following information is available for its second year in business.

20x9
$
Fixed Costs66 000
Direct materials(per unit)15
Direct labour (per unit)9
Variable overheads (per unit)6
Selling price( per unit)44
Production(units)12 000
Sales (units)13 000
  • Closing inventory was 3 000 units valued at $81 000 on 31 December 20×8
  • Oakwood uses the FIFO method of inventory valuation

Required:

  1. Prepare an Absorption Costing Statement of Profit or Loss for the second year

Solution

Oakwood Manufacturing Absorption Costing Statement of Profit or Loss for the year ended 31 December 20×9
$$
Sales 572 000
Opening Inventory81 000
Variable Costs360 000
Fixed Costs66 000
Closing Inventory

(71 000)

448 000
Gross Profit

124 000

To access more topics go the ZIMSEC Advanced Level Accounting page

To access more topics go to the Cambridge AS/A level page

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