Dabwiso Limited uses a standard costing system. The standard cost per unit of Product D is as follows: K Direct material 2 500 Direct labour 1 200 Production overheads: Variable 600 Fixed 500 Standard production cost 4 800 Standard selling price 7 500

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 K500 000 adverse. All units were sold at K7,500 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 K3 000 000 Administration - K5 000 000 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.