Advanced: Explanation of absorption costing changes in profits and preparation of variable costing profit statements Mahler Products has two manufacturing depart¬ ments each producing a single standardized product. The data for unit cost and selling price of these products are as follows:

The factory cost figures are used in the depart¬ mental accounts for the valuation of finished goods stock.
The departmental profit and loss accounts have been prepared for the year to 30 June. These are given below separately for the two halves of the year.

The total sales revenue was the same in each six monthly period but in the second half of the year the company increased the sales of department A (which has the higher profit mark-up) and reduced the sales of department B (which has the lower profit mark-up). An increase in company profits for the second six months was anticipated but the profit achieved was £8000 lower for the second half of the year than for the first half. The profit for department A fell by £41 000 while the profit for department B rose by £33 000. There has been no change in prices of inputs or outputs.
You are required:

(a) to explain the situation described in the last paragraph - illustrate your answer with appro¬ priate supporting calculations, (14 marks)

(b) to redraft the departmental profit and loss accounts using marginal cost to value unsold stock.

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Department Department A B Direct material cost Direct labour cost Variable manufacturing overheads Fixed manufacturing () () + 2 2 4 6 4 4 overheads Factory cost Profit mark-up Selling price 50% 10 2228 12 16 20 30 25% 7.50 30 37.50