QUESTION 2 MARGINAL COSTING 30 MARKS Rotondwa Limited makes and sells one product, the production cost of which is as follows for units: Direct labour Direct material Productio overhead 3 hour at R6 per hour 4 kilograms at R7 per kg Variable Fixed 18 28 3 20 69 Standard production cost Normal output is 16 000 units per annum and this figure is used for the fixed manufacturing overhead calculation, Cost relating to selling, distribution and administration are as follows: Variable 20 per cent of sales value Fixed R180 000 per annum There are no units in finished goods inventory at 1 October 2016. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is R140. For the two six-monthly period detailed below, the number of units to be produced and sold is budgeted as follows: Six months ending Six months ending 31 March 2016 30 September 2016 Production 8 500 7 000 Sales 7 000 8 000 Required: 1. Prepare statements for management showing sales, costs and profit for each of the six-monthly periods, using: 1. Variable costing ii. Absorption costing. (20 marks) 2. Reconcile the profits reported for each six-monthly period. (5 marks) 3. List five assumptions that would need to be made in performing CVP analysis