Question # 5 Ali Ltd makes and sells one product, the standard production cost of which is as follows for one unit: RS. Direct labour (3 hours at Rs.6 per hour) 18 Direct material (4 kgs at Rs.7 per kg) 28 Variable factory Overhead 3 Fixed factory overhead Standard production cost Normal output is 16,000 units per annum and this figure is used for the fixed factory overhead calculation. Costs relating to selling, distribution and administrative are: Variable 20% of sales value Fixed Rs.180,000 per annum The only variance is a fixed factory overhead volume variance. There are no units in finished goods stock at 1.10.2003. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is Rs.140. For each of six monthly periods, the numbers of units to be produced and sold are budgeted as: Six month ending Six month ending 31.3.2004 30.9.2004 Production units 8,500 7.000 Sales units 7,000 8,000 Required: (a) Prepare statements for the management showing sales, costs and profits for each of the six monthly periods, using: Marginal Costing Absorption Costing (b) Prepare an explanatory statement reconciling for each six monthly period the profit using marginal costing with the profit using absorption costing