Question
HP Africa produces pavilion laptops specific for the African market. A branch to serve the African region is situated on Accra, Ghana. HP-Africa has the
HP Africa produces pavilion laptops specific for the African market. A branch to serve the African region is situated on Accra, Ghana. HP-Africa has the capacity to produce 40,000 laptops per year but all realistic estimates of its new business environment warrant sales will exceed 30,000 laptops per year for the next two years. In a bid to improve profitability, the company has hired to study the cost structure of the company and make a recommendation. Your observation revealed the following: Production costs: Variable GHS 1,150 per laptop Fixed GHS 2,500,000 for 30,000 laptops Selling and administrative expenses: Variable GHS 150 per laptop Fixed GHS 1,800,000 During the year ended 31 December 2019, HP - Africa sold 28,000 Pavilion laptops to Ashesi University for GHS 1,400 each. Required: i. Determine the unit cost of production under both absorption and marginal costing systems. ii. Prepare an income statement under the absorptions and determine profit for the period iii. Assuming the company uses variable costing, compute the unit product cost and prepare an income statement for the year iv. Prepare a reconciliation statement and explain the difference between absorption costing and variable costing net operating income in that year.
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