Exclusive Investments Limited manufactures and sells a biscuit called Exclude. This is the only product it manufactures and sells. The following data relates to the companys activities for the quarters 30 September and 31 December 2006.

Quarter ended

30/09/06 31/12/06

Production (units) 1,200 1,000

Sales (units) 1,000 1,200

There was no opening stock on 1 July 2006. The selling price of each unit is K5,000.

Variable costs per unit are:

K

Direct materials 1,500

Direct labour 1,300

Production expenses 200

Budgeted production for the year is 4,800 units. Budgeted fixed production overheads for the year are K3,600,000 and are absorbed using a pre-determined percentage of the total variable cost. Other fixed overheads are:

Quarter ended

30/09/06 31/12/06

K K

Selling overheads 24,000 22,000

Distribution overheads 20,500 21,000

Administration overheads 16,000 17,000

Required:

1. Prepare separate statements using a columnar format to clearly show the results of each quarter:

1. Under a marginal costing system (7 Marks)
2. Under an absorption costing system (7 Marks)

2. Reconcile the profits given by each system, for the two quarters separately, and in total.

(4 Marks)

3. Explain one usage of each costing system. (2 Marks)