Calcium Manufacturers (Pty) Ltd, who produce a standard, small bike, have recently been taken over by Hi-Fly Ltd. Whereas Calcium report their maufacturing and trading results using a costing method which values inventory at full production cost, Hi-Fly favour a variable (marginal) costing approach. At the end of May, which was the first full month of operations after the take-over, Calcium recorded the following results:

	Units
Sales	16 000
Production	20 000

Normal monthly capacity is 15 000 units. During May a large unexpected order was received for delivery in June. Other relevant information is as follows:

Data per unit:

	R
Sales price	60
Direct materials cost	20
Direct labour cost	10
Variable production overhead	5
Variable selling expenses	10% of sales value

Fixed costs budgeted and incurred:

Production Overhead	R105 000
Selling expenses	R15 000
Administration expense	R25 000

There was no inventory at 1 May .

As management Accountant of Calcium, you have been asked to consider the effect on profits if the organisation were to change to Hi-Fly's method of costing.

Required:

2.1 Prepare profit statements for May using:

2.1.1 Calcium's costing method

2.1.2 Hi-Fly's costing method

2.2 Compare the profit calculated above and explain how the difference, if any, arose.