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 30 000 units for delivery at the end of the financial year. The South African selling price per unit is R66.00 You have been given the following cost information for the company: Direct material cost R24 Direct wages cost R10 Variable overhead manufacturing cost R 6 Fixed manufacturing overheads for the financial year R 3 300 000 Overheads are recovered at a fixed cost per unit based on budget annual production. The company has budgeted on producing 25 000 units per month for the first six months of the year and 30 000 units per month for the second half of the year. Budget sales have been set at 20 000 units per month for the first half of the year and at 28 000 units per month for the second half of the year. Company administration costs have been budgeted at R450 000 for the financial year. Variable cost per unit R4 Selling and distribution costs have been budgeted as follows Fixed annual costs R250 000 Note: The variable selling and distribution costs will not be incurred on the overseas order. Opening stock of finished goods: Nil

(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.

(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.

(c) Reconcile the variable profit to the absorption profit to each of the six-monthly periods prepared above.

(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.