Questions: 1) Determine the product (inventoriable) cost per unit under: a) Absorption costing [1 mark] b) Variable costing. [1 mark]

2) Prepare the statement of profit and loss for periods 1-4 under absorption costing by using the gross margin approach. [12 marks]

3) Prepare the statement of profit and loss for periods 1-4 under variable costing by using the contribution margin approach. [12 marks]

4) Reconcile the absorption and variable costing operating profit figures for each period and explain the differences in the operating profits resulting from the use of the two costing methods. [5 marks]

5) Define the absorption costing system and variable costing system. Discuss the arguments for and against the inclusion of fixed manufacturing overhead in stock valuation for internal profit measurement purposes. [3 marks]

6) Under what circumstances will the operating profit under the variable costing be identical to that under absorption costing? Relate your answer to the results for the previous calculation of operating profit of Karya company for questions 2) and 3). [1 mark]

Karya company is a family-owned firm located in Indonesia. The company produces a single product that is a handcrafted musical instrument called gamelan which similar to a xylophone. The following data for periods 1 to 4 are given below: f Direct materials per unit 100 Direct labor per unit 150 Variable non-manufacturing overhead per 50 unit Selling price per unit Budgeted fixed manufacturing overhead per period 550 60,000 Normal activity budgeted activity is 5,000 units and actual production and sales for the or four periods (1-4) are as follows: Sales (units) Production (units) Period 1 5,000 5,000 Period 2 4,000 5,000 Period 3 5,500 4,500 Period 4 4,500 5,000 Karya company is a family-owned firm located in Indonesia. The company produces a single product that is a handcrafted musical instrument called gamelan which similar to a xylophone. The following data for periods 1 to 4 are given below: f Direct materials per unit 100 Direct labor per unit 150 Variable non-manufacturing overhead per 50 unit Selling price per unit Budgeted fixed manufacturing overhead per period 550 60,000 Normal activity budgeted activity is 5,000 units and actual production and sales for the or four periods (1-4) are as follows: Sales (units) Production (units) Period 1 5,000 5,000 Period 2 4,000 5,000 Period 3 5,500 4,500 Period 4 4,500 5,000