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 90 000 shirts and sold 80 000 of them at R150 each. Variable manufacturing costs amounted to R40 per unit and variable marketing costs amounted to R30 per unit sold. Fixed costs totalled R1 200 000 of which R900 000 was for manufacturing overheads and R300 000 was for administration and marketing. Shiraz Manufacturers had the intention of producing 120 000 shirts during 2023. However they manufactured only 100 000 shirts and sold 80% of the shirts produced at R160 each. Variable manufacturing costs increased by 10% and whilst the variable marketing costs of R30 per unit sold also applied to 2023, a sales commission of 5% was introduced from the start of 2023. Fixed costs increased by R120 000 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)

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.)

4.1 Absorption costing (3 marks)

4.2 Variable costing. (3 marks)