QUESTION 2

1. State the assumptions of Cost- Volume Profit ( C-V-P ) analysis ( 3 marks)
2. KLJ Limited is a thriving local manufacturing company with a significant market share. It produces and sells a popular consumer product called PIPA. On 1 April 2023 , the following details were available for unit of PIPA :

Direct Material . .3 kgs at K500 / kg

Direct Labour.2hours at K250/ hour

Variable overhead .. 2hours at K 500/ hour

Fixed Production overhead .. 2 hours at K 600/ hour

Selling price per unit is at cost plus mark up of 40%

The number of units produced and sold for the first two consecutive months were as follows:

FEBRUARY MARCH

Sales 45000 96000

Production 60000 90000

REQUIRED:

1. Prepare a Statement showing profit / Loss for January and February 2023 using :
2. Marginal Costing ( 5 marks )
3. Absorption Costing ( 5 marks)
4. Prepare a Statement reconciling the profits for each month calculated in ( a) above ( 3 marks )

Briefly explain why inventory values and profits under marginal costing will differ from that recorded und Absorption Costing ( 4 marks ) ( Total= 20 marks )