QUESTION FOUR Pot Ltd produces a single product. The management currently uses an absorption costing approach but is considering using a variable costing approach in the future. The following data relates to the most recent month of operations 125 250 7,400 5,900 54 Selling price per unit Units in beginning inventory Units produced Units sold Direct material per unit Direct labour per unit Variable manufacturing overhead per unit Variable selling and administrative cost per unit Fixed manufacturing overhead cost Fixed selling and administrative cost 035 C2 04 74,000 35,400 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. REQUIRED: (a) Calculate the unit product cost for the month under variable costing and under absorption costing (6 Marks) (b) Prepare an income statement for the month using variable costing principles. (15 Marks) (c) Prepare an income statement for the month using absorption costing principles. (15 Marks) (d) Contrast the general effect on profit of using absorption and marginal costing principles respectively. Use the figures in (b) and (c) above to illustrate your answer. (8 Marks) (e) Describe the circumstances when variable and absorption costing systems will report identical profits (6 Marks) (TOTAL: 50 MARKS) Page 5 of 6