SHIRAZ MANUFACTURERS

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

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

$(12$ marks$)$

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

$(9$ marks$)$

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$)$

Calculate the product costs and period costs for the year ended $31$ December $2022$ using the following methods. $($Ignore inventories.$)$