Question :

The following data relates to periods 1 to 4 of a manufacturing company producing a single product: -

(RM)

Variable cost per unit 30

Selling price per unit 60

Fixed overhead per period 6,000

Normal activity is 500 units and production and sales for the four periods are as follows: -

Period 1 units Period 2 units Period 3 units Period 4 units

Sales 500 450 500 400

Production 500 500 450 500

There were no opening stocks at the start of period 1.

Required:

(a) profit statement for each of the periods 1 to 4, based on the variable costing system. (10 marks)

(b) profit statement for each of the periods 1 to 4, based on the traditional absorption costing system. (10 marks)

(c)Assume that this manufacturing company makes Christmas decorative. If you are the management accountant, explain briefly the impact of sales and production cost of such a product on profits if (i) absorption costing, or (ii) variable costing is adopted, and propose which costing system is most suitable here.(5 marks)