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Galaxy Art Limited manufactures and sells fancy side table lamps. The following selling price and manufacturing variable costs per unit information relate to the business

Galaxy Art Limited manufactures and sells fancy side table lamps. The following selling price and manufacturing variable costs per unit information relate to the business for the year ended 30 June 2020:

Sales price

$150

Direct material

$40

Direct labour

$32

Variable overhead

$12

The fixed manufacturing overhead for the current period was $9 000 000. The business produced 500 000 side table lamps but sold 400 000 side table lamps for the year.

Galaxy Art Limited also incurred the following selling and administrative expenses:

Fixed $1 200 000

Variable $5 per unit sold.

1. Why do you think there is more profit under absorption costing? Reconcile

the difference in profit between absorption costing and variable costing. (2 marks)

4. If the accountant prepares the annual financial statements for reporting purposes using variable costing, will the accountant breach any of the fundamental code of ethics? State which one(s)

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