QUESTION ONE

Solar Umised manufacturers a single $30W10V$ cryzal solar panel $($le$.$one product only$).$ This

is acid for R$200$ per unt. The mansgemert sccourtant at Solar Limited has set out a

budgeted proff and loss statement based on asies and production at a nomal level of

activity, as show

Pront and loce ctatement

Note $1$:

The behawor of selling overhesd in relason to changes in sales volume $($units$)$ is as folows:

The organlzation uses an absorption coating spatem to value inventory. For the purpose the

predetermined absorpton rates are based on a norms level of activity.

During the first two periods of the financis year. The production and sales, expressed as a

percertage of normal activity, were as follow:

There was no opening inventory at the beginning of period $1$

Actual seling price and varable cost cer unc were as budgeted in the proft and los:

statement.

Fxed coats incurred each period were as budgeted, except for production overhesd, which

exceeded budget by $10$ per cent.

REQUIRED:

$1\mathrm{.}1$ Prepare proft and loss statements for penods $1$ and $2$ on the basas of:

$1\mathrm{.}1\mathrm{.}1$ Absorption coating

$1\mathrm{.}1\mathrm{.}2$ Varable costing.

$1\mathrm{.}2$ Explain in what circumatances and why the two coasing methods wil give rise to

demerent or equal profts or lossea. Use the flures calculased above to support your

explanaton.