The data below relate to a company which makes and sells one product.

Required:

(a) present comparative profit statements for each month using:
(i) absorption costing, (ii) marginal costing;

(b) comment on the following statement using, for purposes of illustration, if you wish, figures contained in your answer to (a):
‘Marginal costing rewards sales whereas absorption costing rewards production.’

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Sales Production Selling price per unit Variable production costs, per unit Fixed production overhead incurred Fixed production overhead cost, per unit, being the predetermined overhead absorption rate March April units units 4.000 6.000 8 000 2000 96.000 geg 80 80 80 40 40 96.000 12 12 Selling, distribution and administration costs (all fixed) 40 000 40 000