Loopo Limited manufactures a specialised storage accessory for automobiles called 'the Storo',

which is a type of pocket which can be easily fixed in the boot of any vehicle. The company has

been in operation for two years and, now that the production process has been established and

refined, the directors have decided to focus on the income and costs arising from activities. The

managing director has recently read an article about product costing and, in particular,

absorption and variable costing and is keen to understand how this would affect company

profits. The following information is available for the months of March and April:

March

April

Production (units)

13,000

15,000

Sales (units)

12,000

16,000

Direct materials

29,250 [for 13,000 units]

33,750 [for 15,000 units]

Direct labour

19,500 [for 13,000 units]

22,500 [for 15,000 units]

Variable production

overheads

7,800 [for 13,000 units]

9,000 [for 15,000 units]

Total selling and

administrative expenses

45,200

57,600

Additional information:

1. For Loopo Limited normal production capacity is 15,000 units per month.

2. Fixed production overheads are 29,400 per month.

3. The company sells 'the Storo' for 20 each.

4. Total selling and administrative expenses includes a fixed and variable element. The variable

portion is incurred based on units sold. The total fixed cost is 8,000.

5. At the beginning of March the company had no 'Storo' accessories in its warehouse.

REQUIREMENTS:

(a)a profit and loss account for March and April based on marginal cost principles

11 marks

(b)

find profit and loss account for March and April based on absorption cost principles

12 marks

(c) Produce a reconciliation between the profit using marginal costing and absorption costing.

2 marks