Anyone has the solutions to this? (both Q1 and Q2) Thanks!

Class 5: Variable costing and absorption costing 1. Haselbach GmbH Haselbach GmbH sells its razors at 3 per unit. The company uses a first-in, first-out actual costing system. A new fixed manufacturing overhead allocation rate is calculated each year by dividing the actual fixed manufacturing overhead cost by the actual production units. The following simplified data are related to its first two years of operation: Year 1 Year 2 __________________________________________________________________________________ Unit data Sales Production 1000 1400 1200 1000 700 700 1000 400 500 700 1200 400 Cost Variable manufacturing Fixed manufacturing Variable marketing and administration Fixed marketing and administration 1. Prepare income statements based on (a) variable costing and (b) absorption costing for each year. 2. Prepare a reconciliation and explanation of the difference in the operating profit for each year resulting from the use of absorption costing and variable costing. 3. Critics of absorption costing have increasingly emphasised its potential for promoting undesirable incentives for managers. Explain and discuss. 4. What are two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager? Clearly show your workings. 15 2. Transistor Ltd Transistor Ltd manufactures and sells control electrodes. All control electrodes are identical. The following information relates to January and February 2007. Budgeted costs and selling prices were: January February 2.00 2.20 Total fixed manufacturing costs (based on budgeted output of 25,000 units per month) 40,000 44,000 Total fixed marketing costs (based on budgeted sales of 25,000 units per month) 14,000 15,400 5.00 5.50 Variable manufacturing costs per unit Selling price per unit Actual production and sales recorded were: Units (January) Units (February) Production 24,000 24,000 Sales 21,000 26,500 There was no stock of finished goods at the start of January 2007. There was no wastage or loss of finished goods during either January or February 2007. Actual costs incurred corresponded to those budgeted for each month. For the costing of stock the FIFO method is used. 1. Calculate net profit for January and February using the variable costing format. 2. Calculate net profit for January and February using the absorption costing format. 3. Calculate the production-volume variances arising for January and February under the absorption costing format. 4. Explain why in income statements based on absorption costing a production volume variance may arise. How should we interpret the production-volume variance? Clearly show your workings. 16