4 OLESH QUESTION TWO/20 marks TWAHAGEZE Ltd is a Kigali-based company that uses both variable costing and absorption costing. Variable costing is used to provide information for internal management purpose, while absorption costing caters for the external reporting requirements. It was expected by the company that sales would increases by 50% during the year 2016. Hence; production was increased from 100,000 units to 150,000. But the economic conditions turned out to be so that sales could not exceed 100,000 units. The following data are for the year 2016: 2016 Sales (units) 100,000 Producton (units) 150,000 Opening inventory (units) 0 50.000 Closing inventory (units) Selling price per unit 2500 frw Standard variable costs per unit for the year are: Materials Labour Variables factory overhead 400 frw 700 300 1400 frw Fixed costs (actual and standard) Factory selling and administrative 52,500,000 frw 17,500,000 frw The factory overhead rate under absorption costing is based upon practical plant capacity, which is by coincidence 150,000 units per year. Required: (a) Compute the product cost per unit on the basis of: (i) Absorption costing Marginal costing (2 marks) (3 marks) (b) Prepare profit and loss statements for the period on the basis of: (1) Absorption costing (5 marks) (ii) Marginal costing (6 marks) (c) Account for the differences in profit figures between the two methods and hence reconcile the two net income figures obtained in (c) above