Chairs Limited commenced business on 1 January 2018. It manufactures a special type of chair designed to alleviate back pain. Information on the first year’s trading is as follows: number of chairs manufactured 5,000 and number of chairs sold 4,500 selling price OMR 170 per chair, direct materials OMR 40 per chair, direct labour OMR 60 per chair, fixed production overheads OMR 225,000. The directors ask for your help in producing profit statements using the marginal costing and absorption costing methods. They say that they will use ‘the one that shows the higher profit’ to the company’s bank manager.
Chairs Limited commenced business on 1 January 2018. It manufactures a special type of chair designed to alleviate back pain. Information on the first year’s trading is as follows: number of chairs manufactured 5,000 and number of chairs sold 4,500 selling price OMR 170 per chair, direct materials OMR 40 per chair, direct labour OMR 60 per chair, fixed production overheads OMR 225,000. The directors ask for your help in producing profit statements using the marginal costing and absorption costing methods. They say that they will use ‘the one that shows the higher profit’ to the company’s bank manager.
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QUESTION 3
Calculate the value of the fixed
method.
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