Solar Limited manufacturers a single $30$W $10$V crystal solar panel $($ie$.$one product only$).$ This is sold for R$200$ per unit. The management accountant at Solar Limited has set out a budgeted profit and loss statement based on sales and production at a normal level of activity, as show

Profit and loss statement

R$000$ R$000$

Sales $2000$

Costs:

Direct materials $600$

Direct wages: variable $200$

Production overhead: variable $100$

Fixed $400$

Administration overhead: fixed $200$

Selling overheads $($Note $1)1001800$

Profit $200$

Note $1$:

The behavior of selling overhead in relation to changes in sales volume $($units$)$ is as follows:

$90\%$ of normal activity Normal activity

$110\%$ of normal activity

Selling overheads R $97000$ R $100000$ R $103000$

The organization uses an absorption costing system to value inventory. For this purpose the predetermined absorption rates are based on a normal level of activity.

During the first two periods of the financial year. The production and sales, expressed as a percentage of normal activity, were as follows:

Period $1$ Period $2$

Sales $80\%100\%$

Production $100\%80\%$

There was no opening inventory at the beginning of period $1$

Actual selling price and variable cost per unit were as budgeted in the profit and loss statement.

Fixed costs incurred each period were as budgeted, except for production overhead, which exceeded budget by $10$ per cent.

REQUIRED:

$1\mathrm{.}2$ Explain in what circumstances and why the two costing methods will give rise to different or equal profits or losses. Use the figures calculated above to support your explanation.