Buns Ltd is a company which manufactures clothes for sale to retail chain stores. As Buns operates in a competitive market, it has minimal control over selling prices and quantities demanded. In order to expand the product range, at the beginning of 2020 Buns purchased a factory manufacturing leather sandals. The purchase price included finished goods inventory. At the end of the first year of operation under new management, the company's accountant prepared the actual Statement of Comprehensive Income for the twelve months ending 31 December 2020 as follows: You are provided with the following additional information: 1. Inventory of finished goods was stated at fully absorbed factory cost, with actual fixed manufacturing overhead being allocated on the basis of units produced. Inventory is valued on the FIFO basis. There was no opening or closing inventory of raw materials or workinprogress. 2. The factory has the manufacturing capacity to produce 75000 pairs of shoes, however due to persistent scheduling problems and poor management of the production line, only 50000 pairs of shoes were produced historically since incorporation of the company including the twelve months to 31 December 2020 . 3. Selling costs represent distribution expenses, which were 10% of the sales value of goods sold. 4. It is not possible in the foreseeable future for the Factory Manager to change variable costs per unit, fixed costs per annum, selling price per unit, selling costs per unit or the number of pairs of sandals sold each year. Notes You were also informed that the directors of Buns were unhappy with the performance of the factory in 2020 and consequently appointed a new Factory Manager on a short-term contract for two years commencing 1 January 2021. Under its terms, he was to have complete control over the scheduling of production. To provide an incentive, it was agreed that his remuneration should be 10% of net profit before deducting the incentive expense. It was further agreed that for this purpose, profit should be calculated applying the accounting policies adopted in preparing the 2020 actual Statement of Comprehensive Income shown above. In 2021 the factory produced 75000 pairs of sandals - the limit of its output capacity, after the new factory manager was able to permanently overcome the scheduling problems and poor management of the production line. However, only 50000 pairs of sandals were sold. In 2022 the factory again produced 75000 pairs of sandals and 50000 pairs of sandals were again sold. As anticipated at the end of 2020, variable costs per unit, fixed costs per annum, selling price per unit, and selling costs per unit all remained at their 2020 levels during both 2021 and 2022. Expansion to product range: Buns is considering expanding its product range in 2023 from selling sandals only, to selling sandals as well as high end 'takkies' and winter boots. This would necessitate reducing the production of sandals as the factory's manufacturing capacity is limited to 75000 pairs of shoes. Due to the warm tropical climate in Durban. Buns is budgeting on 150% of the manufacturing capacity being used in the production of sandals. The baiance of the production capacity will be evenly split between takkies and boots. REQUIRED: 1. Using the stated method of valuing finished goods inventory, calculate the actual net profits earned by the factory in 2021 and 2022 and the Factory Manager's remuneration for those two years. 2. Without producing any additional Statements of Comprehensive Income, reconcile the 2020, 2021 and 2022 absorption costing profits to variable costing profits/losses, before accounting for the Factory Manager's remuneration. Buns Ltd is a company which manufactures clothes for sale to retail chain stores. As Buns operates in a competitive market, it has minimal control over selling prices and quantities demanded. In order to expand the product range, at the beginning of 2020 Buns purchased a factory manufacturing leather sandals. The purchase price included finished goods inventory. At the end of the first year of operation under new management, the company's accountant prepared the actual Statement of Comprehensive Income for the twelve months ending 31 December 2020 as follows: You are provided with the following additional information: 1. Inventory of finished goods was stated at fully absorbed factory cost, with actual fixed manufacturing overhead being allocated on the basis of units produced. Inventory is valued on the FIFO basis. There was no opening or closing inventory of raw materials or workinprogress. 2. The factory has the manufacturing capacity to produce 75000 pairs of shoes, however due to persistent scheduling problems and poor management of the production line, only 50000 pairs of shoes were produced historically since incorporation of the company including the twelve months to 31 December 2020 . 3. Selling costs represent distribution expenses, which were 10% of the sales value of goods sold. 4. It is not possible in the foreseeable future for the Factory Manager to change variable costs per unit, fixed costs per annum, selling price per unit, selling costs per unit or the number of pairs of sandals sold each year. Notes You were also informed that the directors of Buns were unhappy with the performance of the factory in 2020 and consequently appointed a new Factory Manager on a short-term contract for two years commencing 1 January 2021. Under its terms, he was to have complete control over the scheduling of production. To provide an incentive, it was agreed that his remuneration should be 10% of net profit before deducting the incentive expense. It was further agreed that for this purpose, profit should be calculated applying the accounting policies adopted in preparing the 2020 actual Statement of Comprehensive Income shown above. In 2021 the factory produced 75000 pairs of sandals - the limit of its output capacity, after the new factory manager was able to permanently overcome the scheduling problems and poor management of the production line. However, only 50000 pairs of sandals were sold. In 2022 the factory again produced 75000 pairs of sandals and 50000 pairs of sandals were again sold. As anticipated at the end of 2020, variable costs per unit, fixed costs per annum, selling price per unit, and selling costs per unit all remained at their 2020 levels during both 2021 and 2022. Expansion to product range: Buns is considering expanding its product range in 2023 from selling sandals only, to selling sandals as well as high end 'takkies' and winter boots. This would necessitate reducing the production of sandals as the factory's manufacturing capacity is limited to 75000 pairs of shoes. Due to the warm tropical climate in Durban. Buns is budgeting on 150% of the manufacturing capacity being used in the production of sandals. The baiance of the production capacity will be evenly split between takkies and boots. REQUIRED: 1. Using the stated method of valuing finished goods inventory, calculate the actual net profits earned by the factory in 2021 and 2022 and the Factory Manager's remuneration for those two years. 2. Without producing any additional Statements of Comprehensive Income, reconcile the 2020, 2021 and 2022 absorption costing profits to variable costing profits/losses, before accounting for the Factory Manager's remuneration