Shiraz Manufacturers commenced operations on $02$ January $2022$ by manufacturing lounge shirts and selling them to

retailers. Their aim is to eventually become a leading clothing manufacturer by producing a broad spectrum of quality

products. They are situated in Durban but hope to expand their operations to other parts of the country.

During $2022$ Shiraz Manufacturers produced $90000$ shirts and sold $80000$ of them at R$150$ each. Variable

manufacturing costs amounted to R$40$ per unit and variable marketing costs amounted to R$30$ per unit sold. Fixed costs

totalled R$1200000$ of which R$900000$ was for manufacturing overheads and R$300000$ was for administration and

marketing.

Shiraz Manufacturers had the intention of producing $120000$ shirts during $2023.$ However they manufactured only

$100000$ shirts and sold $80\%$ of the shirts produced at R$160$ each. Variable manufacturing costs increased by $10\%$ and

whilst the variable marketing costs of R$30$ per unit sold also applied to $2023,$ a sales commission of $5\%$ was introduced

from the start of $2023.$ Fixed costs increased by R$120000$ but the proportion of fixed manufacturing overheads cost to

fixed administration and marketing costs remained the same as for $2022.$REQUIRED

$1.$ Prepare the Income Statement for the year ended $31$ December $2023$ using the absorption

costing method.

$(12$ marks$)$

$2.$ Prepare the Income Statement for the year ended $31$ December $2023$ using the variable

costing method.

$(9$ marks$)$

$3.$ Reconcile the profit calculated according to absorption costing $($in question $1)$ with the profit

calculated according to variable costing $($in question $2).$ Your answer must include the

calculation of the fixed manufacturing costs in inventories.

$(3$ marks$)$

$4.$ Calculate the product costs and period costs for the year ended $31$ December $2022$ using the

following methods. $($Ignore inventories.$)$

$4\mathrm{.}1$ Absorption costing $(3$ marks$)$

$4\mathrm{.}2$ Variable costing. $(3$ marks