Blue Incorporated manufactures a product with the following cost structure: Price per unit Selling price R12 Production costs: Material R2 Labour R2 Variable overheads R1 Fixed overheads R5 000 Over a three-year period the production and sales of the product are as follows: Y1 Y2 Y3 Production 2 000 1 000 2 000 Sales 1 000 2 000 2 000

Required:

1.1 You are required to produce the Statement of Financial Performance over the three-year period under the absorption costing.

1.2 Evaluate the application of the absorption costing method in profit reporting.