Freetown Ltd manufactures and sells a single product whose selling price is GHS20 per unit. The following costs were incurred during the last financial year:

Variable costs per unit:

Direct materials GHS8.0

Direct labour GHS6.5

Variable manufacturing overheadGHS3.5

Variable selling and administrative overhead GHS4.0

Fixed costs per year:

Fixed manufacturing overhead GHS500,000

Fixed selling and administrative overhead GHS450,000

During the year, the company produced 130,000. There were 30,000 units at the beginning of the year and 40,000 units at the end of the year.

Required:

(a) Assuming the company uses absorption costing compute the unit product cost and prepare an income statement for the year

(b) Assuming the company uses variable costing, compute the unit product cost and prepare an income statement for the year

(c) Prepare a reconciliation of the variable and absorption costing net operating income.