Intermediate: Preparation and reconcilation of variable and absorption costing profit statements X Umited commenced business on 1st March making one product only, the standard cost of which is as follows:

The fixed production overhead figure has been calculated on the basis of a budgeted normal output of 36 000 units per annum.
You are to assume that there were no expenditure of efficiency variances and that all the budgeted fixed expenses are incurred evenly over the year. March and April are to be taken as equal period months.
Selling, distribution and administration expenses are:
Fixed £120 000 per annum Variable 15% of the sales value.
The selling price per unit is £35 and the number of units produced and sold were:

You are required to:

(a) prepare profit statements for each of the months of March and April using:
(i) marginal costing; and (ii) absorption costing; (15 marks)

(b) present a reconciliation of the profit or loss figures given in your answers to (a)(i) and (a)(ii) accompanied by a brief explanation; (5 marks)

(c) comment briefly on which costing principle, i.e. marginal or absorption, should be used for what purpose(s) and why, referring to any statutory or other mandatory constraints.

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() 158252 Direct labour Direct material Variable production overhead Fixed production overhead Standard production cost