QUESTION ONE [3:0] Solar Limited manufacturers a single 30W 10V crystal solar panel (ie one product...

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QUESTION ONE [3:0] Solar Limited manufacturers a single 30W 10V crystal solar panel (ie one product only). This is sold for R200 per unit. The management accountant at Solar Limited has set out a budgeted profit and loss statement based on sales and production at a normal level of activity, as show Sales Costs Profil Profit and loss statement R'000 R'000 2000 Direct materials 600 Direct wages: variable 200 Production overhead: variable 100 Fixed 400 Administration overhead: fixed 200 Selling overheads (Note 1) 100 1800 200 Note 1: The behavior of selling overhead in relation to changes in sales volume (units) is as follows: 80% of normal activity Normal activity 110% of normal activity Selling overheads R 97000 R 100 000 R 103 000 The organization uses an absorption costing system to value inventory. For this purpose the predetermined absorption rates are based on a normal level of activity. During the first two periods of the financial year. The production and sales, expressed as a percentage of normal activity, were as follows: Sales Production Period 1 80% 100% Period 2 100% 80% There was no opening inventory at the beginning of period 1 Actual seiling price and variable cost per unit were as budgeted in the profit and loss statement. Fixed costs incurred each period were as budgeted, except for production overhead, which exceeded budget by 10 percent REQUIRED: 1.1 Prepare profit and loss statements for periods 1 and 2 on the basis of 1.1.1 Absorption costing (12) 1.1.2 Variable costing. (12) 1.2 Explain in what circumstances and why the two costing methods will give rise to different or equal profits or losses. Use the figures calculated above to support your explanation. (6) QUESTION ONE [3:0] Solar Limited manufacturers a single 30W 10V crystal solar panel (ie one product only). This is sold for R200 per unit. The management accountant at Solar Limited has set out a budgeted profit and loss statement based on sales and production at a normal level of activity, as show Sales Costs Profil Profit and loss statement R'000 R'000 2000 Direct materials 600 Direct wages: variable 200 Production overhead: variable 100 Fixed 400 Administration overhead: fixed 200 Selling overheads (Note 1) 100 1800 200 Note 1: The behavior of selling overhead in relation to changes in sales volume (units) is as follows: 80% of normal activity Normal activity 110% of normal activity Selling overheads R 97000 R 100 000 R 103 000 The organization uses an absorption costing system to value inventory. For this purpose the predetermined absorption rates are based on a normal level of activity. During the first two periods of the financial year. The production and sales, expressed as a percentage of normal activity, were as follows: Sales Production Period 1 80% 100% Period 2 100% 80% There was no opening inventory at the beginning of period 1 Actual seiling price and variable cost per unit were as budgeted in the profit and loss statement. Fixed costs incurred each period were as budgeted, except for production overhead, which exceeded budget by 10 percent REQUIRED: 1.1 Prepare profit and loss statements for periods 1 and 2 on the basis of 1.1.1 Absorption costing (12) 1.1.2 Variable costing. (12) 1.2 Explain in what circumstances and why the two costing methods will give rise to different or equal profits or losses. Use the figures calculated above to support your explanation. (6)