Harbison Limited is launching their new product LinX next January and are currently determining its appropriate selling price. The Production Manager has confirmed that production is due to commence on 1 January and has provided the following information

Question 3 Harbison Limited is launching their new product LinX next January and are currently determining its appropriate selling price. The Production Manager has confirmed that production is due to commence on 1 January and has provided the following information: Per unit of LinX Direct materials 18.30 Packaging 5.30 Direct labour hours 0.25 Direct labour is charged at 24 per hour, plus an additional 15% for employer related costs (PRSI, pension, etc.). Light and heat is charged as a variable cost at a rate of 60 per each labour hour worked. Fixed production overhead attributable to LinX is budgeted at 90,000 per month and are absorbed based on budgeted monthly production levels of 12,000 units. Harbison Ltd budget its mark-up based on the full absorption cost of its products and expect a 150% mark-up on all sales of LinX. The Sales Manager is budgeting monthly sales of 12,000 units of LinX and have notified the Production Manager that 25% of the following month's sales are required in inventory on the last day of each month. In a bid to ensure profits are reported in the monthly management accounts meet with shareholder expectations, the Financial Controller proposes changing the basis of costing between absorption costing and marginal (variable costing) month by month. Requirement: (a) Calculate the selling price to be charged for one unit of LinX. 4 marks (b) Prepare a profit statement for LinX using absorption costing for the month of January. 5 marks (c) Prepare a profit statement for LinX using variable (marginal) costing for the month of January. 5 marks (d) Reconcile the profit reported under the two costing methods calculated in part (b) and (c) above. 3 marks (e) Briefly discuss the ethics of the Financial Controller's suggestion. 3 marks Total 20 marks