The following data has been extracted from the budgets and standard costs of Kerry

Limited, a company which manufactures and sells a single product.

The selling price and production costs per unit are as follows:

Fixed production overhead costs are budgeted at $$400,000$ per annum.

Normal production levels are estimated at $320,000$ units per annum.

Budgeted selling and distribution costs are as follows:

Variable costs

Fixed costs

$$1\mathrm{.}50$ per unit sold

$$80,000$ per annum

Budgeted administration costs are $$120,000$ per annum.

The following pattern of sales and production is expected for the first two

quarters of next year:

There will be no opening inventory at the beginning of the first quarter

Inventory is valued on a First in first out $($FIFO$)$ basis.

Required:

a$)$ Prepare a forecast Income Statement in columnar form for each of the first two

quarters, using marginal costing.

b$)$ Prepare a forecast Income Statement in columnar form for each of the first two

quarters, using absorption costing.

You must show opening and closing inventories in your calculations of a$)$ and b$)$

above

$(16$ marks$)$

c$)$ Reconcile the profits calculated on the marginal costing basis and the

absorption costing basis for each quarter. You are required to reconcile the

figures with a numerical computation and give a brief explanation of the

difference.

$(4$ marks$)$

Total $20$ marks