QUESTION TWO Lighting Company manufactures a mobile battery-powered lamp. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors and the government. During Lighting Company's first two years of operations, the company reported operating profit as follows (on an absorption costing basis): Year 1 Year 2 2,000,000 2,500,000 Sales (@ 50 per unit) Less cost of goods sold: Beginning inventory Add cost of goods manufactured (@36 per unit) Goods available for sale Less ending inventory (@36 per unit) Cost of goods sold Gross margin Less selling and administrative expenses* Operating profit *4 per unit variable; 260,000 fixed each year. 0 1,620,000 1,620,000 180,000 1,440,000 560,000 420,000 140,000 180,000 1,620,000 1,800,000 0 1,800,000 700,000 460,000 240,000 The company's 36 unit product cost is computed as follows: 8 14 Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead (540,000/45,000 units) Unit product cost 2 12 36 Production and cost data for the two years are: Units produced Units sold Year 1 Year 2 45,000 45,000 40,000 50,000 CONTINUED................ Required: (a) Prepare a statement of profit and loss for each year in the contribution format using variable costing. (40 Marks) (b) Reconcile the absorption costing and the variable costing profit figures for each year. (20 Marks) [TOTAL: 60 MARKS]