Painters $($Pty$)$ Ltd manufactures and sells a single product which it sells on the

local market. The company has recently received an order from a company in

Asia at a selling price that represents a $25\%$ discount on current South African

selling prices. The order is for $30000$ units for delivery at the end of the financial

year.

The South African selling price per unit is R$66\mathrm{.}00$

You have been given the following cost information for the company:

Direct material cost R$24$

Direct wages cost R$10$

Variable overhead manufacturing cost R $6$

Fixed manufacturing overheads for the financial year R $3300000$

Overheads are recovered at a fixed cost per unit based on budget annual production.

The company has budgeted on producing $25000$ units per month for the first six

months of the year and $30000$ units per month for the second half of the year.

Budget sales have been set at $20000$ units per month for the first half of the year

and at $28000$ units per month for the second half of the year.

Company administration costs have been budgeted at R$450000$ for the financial year.

Variable cost per unit R$4$

Selling and distribution costs have been budgeted as follows $$

Fixed annual costs R$250000$

Note: The variable selling and distribution costs will not be incurred on the overseas order.

Opening stock of finished goods: Nil

You are required to:

$($a$)$ Prepare a profit statement for the first and the second six$-$monthly periods of the

financial year using the variable costing system of valuing closing stock.

Note: You are required to prepare two profit statements only $(20$ marks$)$

$($b$)$ Prepare a profit statement for the first and the second six$-$monthly periods of the

financial year using the absorption costing system of valuing closing stock.

Note: You are required to prepare two profit statements only $(20$ marks$)$

$($c$)$ Reconcile the variable profit to the absorption profit to each of the six$-$monthly periods

prepared above. $(6$ marks$)$

$($d$)$ Discuss whether the company should accept the Asian order and whether the company

should use the variable or absorption costing for decision making purposes. $(4$ marks$)$