Question 4

Real Ltd Manufacturing operations for 2020 are as follows:

Per unit:	$000
Sales price	50
Direct material cost	18
Direct wages	4
Variable production overhead	3

Per month:

	$000
Fixed production overhead	99 000
Fixed selling expenses	14 000
Fixed administration expenses	26 000

Variable selling expenses is 10% of sales value.

Normal budgeted capacity is 11 000 units per month.

Actual Performance
	January Units	February Units
Sales	10 000	12 000
Production	12 000	10 000

The closing inventory of January becomes the opening inventory for February

Using the two methods:

1. Compute the unit production cost (2 marks)
2. Determine the value of the closing inventory (4 marks)
3. Prepare the Marginal Income Statement and the Absorption Income Statement for January and February (22 marks)
4. Reconcile the net profits for January and February (2 marks)

(Total 30 marks)