Samfort Industries manufactures and sells glass cabinets. The following selling price and manufacturing variable costs per unit information relate to the business for the year ended 30 June 2018:

 

Sales price

$600

Direct material

$170

Direct labour

$90

Variable overhead

$105

 

The fixed manufacturing overhead for the current period was $8 000 000. The business produced 250 000 cabinets but sold 230 000 cabinets for the year.

Samfort Industries also incurred the following selling and administrative expenses:

Fixed                $300 000

Variable           $9 per unit sold.

 

 

Required:

 

1. Calculate the cost per unit under absorption and variable costing. (2 marks)

2. Prepare income statement for the current year using:

   (a) absorption costing (5 marks)

   (b) variable costing (5 marks)

3. Why do you think there is more profit under absorption costing? Reconcile

    the difference in profit between absorption costing and variable costing. (2 marks)

4. If the accountant prepares the annual financial statements for reporting purposes using variable costing, will the accountant breach any of the fundamental code of ethics? State which one(s).