Blue Incorporated manufactures a product with the following cost structure:

Price per unit

Selling price R$12$

Production costs:

Material R$2$

Labour R$2$

Variable overheads R$1$

Fixed overheads R$5000$

Over a three$-$year period the production and sales of the product are as follows:

Y$1$ Y$2$ Y$3$

Production $200010002000$

Sales $100020002000$

Required:

$1\mathrm{.}1$ You are required to produce the Statement of Financial Performance over the three$-$year

period under the absorption costing. $(15)$

$1\mathrm{.}2$ Evaluate the application of the absorption costing method in profit reporting. $(5)$