1. Sweet Hijab manufactures and sells pleated ironless hijab. The following budgeted/ actual information is provided regarding to the production of hijab:

RM/unit

Selling price 50.00

Direct materials8.00

Direct labour 5.00

Variable production overheads 3.00

Details of its operations for the month of May and June 2021 are as follows:

May June

Production 500 380

Sales 300 500

Fixed production overheads are budgeted at RM4,000 per month and are absorbed on a unit basis. The normal level of production is budgeted at 400 units per month.

Other costs:

RM/month

Fixed selling 4,000

Fixed administration 2,000

Variable sales commission 5% of sales revenue There was no opening inventory of hijab at the beginning of May.

Required:

(a) Prepare income statement for the month of May and June using;

(i) variable costing

(ii) absorption costing

(b) Prepare a reconciliation of profit or loss figures based on your answers in a(i) and (ii).

(c) Describe a situation where net profit under variable costing is higher than absorption costing.

(a) Explain the following terms:

(i) margin of safety

(ii) contribution margin

(iii) contribution to sales ratio

(iv) cost behaviour in a linear function

(v) break even analysis

(5 marks)