Dabwiso Limited uses a standard costing system. The standard cost per unit of

Product D is as follows:

K

Direct material $2500$

Direct labour $1200$

Production overheads: Variable $600$

Fixed $500$

Standard production cost $4800$

Standard selling price $7500$

The standard fixed production overhead absorption rate was based on a budgeted

activity of $10,000$ units.

During Period $4,$ Production was $10,000$ units as planned but sales were only $8,000$

units. There was a total fixed production overhead variance of K$500000$ adverse. All

units were sold at K$7,500$ each.

There were no opening inventory at the beginning of the period.

Other costs incurred during the period were in relation to selling and distribution, and

administration. These were as follows:

Variable Fixed

Selling and distribution $20\%$ of sales K$3000000$

Administration $$ K$5000000$

Required:

$($a$)$ Prepare operating Profit statement for Period $4$ using:

$($i$)$ Absorption costing

$($ii$)$ Marginal

$($b$)$ Prepare a reconciliation of the difference between the Profit$/$Loss under absorption

costing and under marginal costing and explain the reason for the difference.