Question 4 Marginal Costing 25 marks Fiona Limited manufactures a bath foam product and sells a single 500ml bottle to retailers at R40 per unit. Fixed manufacturing overheads are allocated as a percentage of direct material cost. The budgeted fixed manufacturing overheads amount to R75 000 and are based on a budgeted direct material cost of R50 000. The total actual production and other costs for 2015 are as follows: Direct material cost R44 800 Direct labour cost R90 400 Variable manufacturing overheads R31 200 Commission on sales 5% Variable packaging cost R1 500 Fixed marketing cost R30 000 Fixed manufacturing overheads R70 000 Fiona limited produce 8 000 units in 2015. There were 3 000 units in opening inventory and 10 000 units were sold. Production was 20% more in 2016 than in 2015 and there were 1 300 units in closing inventory. All variable production unit costs increased by 10% in 2016. All fixed cost increased by 5% Required: (a) Calculate the unit cost using absorption costing approach for both 2015 and 2016. (5 marks) (b) Compile the income statements for 2015 and 2016 using the direct costing approach. (15 marks) (c) Reconcile the difference in profit between the two years (5 marks) 6