QUESTION ONE

$[30]$

Solar Limited manufacturers a single $30W10V$ crystal solar panel $($ie$.$one product only$).$ This is sold for R$200$ per unit. The management accountant at Solar Limited has set out a budgeted profit and loss statement based on sales and production at a normal level of activity, as show

Profit and loss statement

$\backslash$table$[[,$R$\text{'}000,$R$000],[$Sales$,,2000],[$Costs:$],[$Direct materials,$600,],[$Direct wages: variable,$200,],[$Production overhead: variable,$100,],[$Fixed$,400,],[$Administration overhead: fixed,$200,],[$Selling overheads $($Note $1),{100}_{?},1800],[$Profit$,,200]]$

Note $1$:

The behavior of selling overhead in relation to changes in sales volume $($units$)$ is as follows:

$\backslash$table$[[90\%$ of normal activity Normal activity,$110\%$ of normal activity,,$],[$Selling overheads,R $97000,$R $100000,$R $103000]]$

The organization uses an absorption costing system to value inventory. For this purpose the predetermined absorption rates are based on a normal level of activity.

During the first two periods of the financial year. The production and sales, expressed as a percentage of normal activity, were as follows:

$\backslash$table$[[,$Period $1,$Period $2],[$Sales$,80\%,100\%$