Mantelli Manufacturers, which produces chairs, commenced trading on 01 March 2023. During the first month of operations the sales and production volumes were 4 600 units and 5 000 units respectively. Fixed manufacturing costs and fixed administration costs totaled R36 000 and R24 000 respectively. Variable manufacturing costs and variable sellingcostsamountedtoR44perunitandR26perunitrespectively. ThechairsweresoldforR190each.

During April 2023 the sales and production dropped to 4 200 units and 4 600 units respectively. The selling price increased to R200 per chair. Variable manufacturing costs increased to R50 per unit whilst the variable selling costs increased by R4 per unit. Fixed manufacturing costs increased to R46 000 whist the fixed administration costs increased by R2 000. The first-in-first-out method for valuing inventories is used.

Mantelli Manufacturers was using the absorption costing method to prepare its income statement but the financial manager but has been advised to use the variable costing method as it offered many benefits.

REQUIRED

1. Prepare the Income Statement for the month ended 30 April 2023 using the variable costing method.

2. Prepare the Income Statement for the month ended 30 April 2023 using the absorption costing method.

3. Calculate the value of the fixed manufacturing costs in the opening and closing inventories, using the absorption costing method.

4. Calculate the product costs and period costs for the month ended 30 April 2023 using the following costing methods. (Ignore inventories.)

4.1 Absorption costing

4.2 Variable costing.

5. Explain why the financial manager of Mantelli Manufacturers should use variable costing instead of the absorption costing.

(10 marks) (10 marks) (3 marks)

(2 marks) (2 marks)

(3 marks)