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Chapter 1

Example 3

Limco sold its product for $65 per unit.

Produce a standard cost card for Limco’s product using marginal
costing and calculate the actual profit for the period.

Solution

The standard cost card will not include fixed production overheads:

$
Direct materials 3 kg × $5/kg 15
Direct labour 1/3 of an hour × $24 per hour 8

Variable overheads 1/3 of an hour × $6 per hour 2

––––
Marginal cost 25
––––

The expected contribution per unit for the product = $65 – $25 = $40

Actual sales = 18,000 units

Actual contribution = 18,000 × $40 = $720,000

Actual profit = actual contribution – fixed production overheads

Actual profit = $720,000 – $200,000 = $520,000

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