ANWSER
Question 1:
i. Computation of Profit Taken in the Contract Account:
1. Total Cost Incurred:
– Direct materials issued: N27,000
– Less: Materials returned to store: N500
– Add: Materials on site at 31st Dec 2017: N8,000
– Direct labour payment: N20,000
– Add: Wages accrued: N1,000
– Direct expenses: N7,000
– Add: Direct expenses accrued: N1,000
– Administrative charges: N6,000
– Equipment depreciation (Cost – Value at year-end): N25,000 – N20,000 = N5,000
– Total Cost: N27,000 – N500 + N8,000 + N20,000 + N1,000 + N7,000 + N1,000 + N6,000 + N5,000 = N74,500
2. Notional Profit:
– Work certified: N90,000
– Cost of uncertified work: N8,000
– Total Work Done: N90,000 + N8,000 = N98,000
– Notional Profit: Total Work Done – Total Cost = N98,000 – N74,500 = N23,500
3. Profit Taken:
– Cash received: N80,000
– Work certified: N90,000
– Profit Taken: (Cash received / Work certified) × Notional Profit = (N80,000 / N90,000) × N23,500 ≈ N20,888.89
ii. Contractee’s Account:
| Particulars | Amount (N) |
|—————————|————|
| To Contract Account (Work certified) | 90,000 |
| Total | 90,000 |
| Particulars | Amount (N) |
|—————————|————|
| By Cash received | 80,000 |
| By Retention (Balance) | 10,000 |
| Total | 90,000 |
iii. Contract Account:
| Particulars | Amount (N) | Particulars | Amount (N) |
|—————————|————|—————————|————|
| To Direct materials | 27,000 | By Materials returned | 500 |
| To Direct labour | 20,000 | By Materials on site | 8,000 |
| To Wages accrued | 1,000 | By Contractee (Work certified)| 90,000 |
| To Direct expenses | 7,000 | By Cost of uncertified work| 8,000 |
| To Direct expenses accrued| 1,000 | By Equipment at year-end | 20,000 |
| To Administrative charges | 6,000 | By Notional Profit (Bal. fig)| 23,500 |
| To Equipment installed | 25,000 | | |
| Total | 87,000 | Total | 149,500|
b. Explanation of Terms:
1. Architect Certificate: A document issued by the architect certifying the completion and value of work done on a construction project, used for progress payments.
2. Retention Fee: A portion of the contract price withheld by the client until the project is fully completed to ensure contractor performance.
3. Cost of Work Certified: The actual cost incurred for the portion of work certified by the architect.
4. Notional Profit or Loss: The difference between the value of work certified (and uncertified) and the total cost incurred to date, before adjusting for profit recognition.
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Question 2:
a. Differences Between Marginal Costing and Absorption Costing:
1. Treatment of Fixed Costs:
– Marginal costing treats fixed costs as period costs.
– Absorption costing allocates fixed costs to units produced.
2. Inventory Valuation:
– Marginal costing values inventory at variable cost only.
– Absorption costing includes fixed overheads in inventory valuation.
3. Profit Calculation:
– Marginal costing shows contribution margin (sales – variable costs).
– Absorption costing shows gross profit (sales – total production costs).
b. Profit Calculation for Bukky Construction Company:
Given Data:
– Selling price per unit: Not provided (assume missing; required for full calculation).
– Units produced/sold: Not provided (assume missing).
Absorption Costing:
– Total cost per unit = Direct materials (N6) + Direct labour (N8) + Variable overhead (N2) + Fixed cost (N8) = N24.
– Profit = (Selling price per unit – N24) × Units sold.
Marginal Costing:
– Variable cost per unit = N6 + N8 + N2 = N16.
– Contribution per unit = Selling price – N16.
– Profit = (Contribution per unit × Units sold) – Total fixed costs (N8 × Units produced).
*Note: Full calculation requires selling price and units produced/sold.*
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