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Answer Both Questions for 25 marks (Show all your workings) Question 1 Adamu Company Limited began operations on January 1, 2020 and its accounting year
Answer Both Questions for 25 marks (Show all your workings) Question 1 Adamu Company Limited began operations on January 1, 2020 and its accounting year ends on December 31, 2020. The following information pertains to the Company's production and sales for the year: Production during the year ........ 14,000 units Sales during the year .... .....15,000 units Beginning inventory . . . . . .. ......5,000 units Selling Price ... . GH& 24.00 per unit Direct materials cost ...... . . . . .... GH& 4.25 per unit Direct labour cost .... GHe 6.25 per unit Variable manufacturing overhead .......... ..GHe 2.00 per unit Fixed manufacturing overhead ........................ GHe 42,000 Variable selling and administrative expenses ..................... GHe 21,000 Fixed selling and administrative expenses ........ . GHe 32,000 Required: a) Calculate the product cost per unit under the absorption and variable costing methods (2 marks) b) Prepare the income statement for Adamu for the year under the absorption and variable costing methods showing the operating incomes for the year (4.5 marks) c) Reconcile the difference in operating incomes between the two costing methods (2 marks) d) Provide a reason for the difference between the incomes under the two costing methods. (2 marks) e) Which method would you recommend for adoption by Adamu Limited. (2 marks)
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