The MD has presented you with the following information regarding the companys activities in 2021;

Budgeted variable costs Per unit Direct materials 21 Direct labour.. 2 hours * 9.50 per hour Variable manufacturing overhead 10 Variable selling overhead. 6 Budgeted fixed overheads Manufacturing 105,000 Selling.. 97,000 The normal expected production volume per annum is 7,000 units.

Actual production for 2021 amounted to 7,400 units. The sales volume achieved for the year was 7,300 units with a unit selling price of 149.

The actual fixed manufacturing overhead was 112,000 and fixed selling overhead was 97,000. All variable costs per unit were incurred as budgeted.

The opening stock of finished goods at 1st Jan 2021 consisted of 600 units valued at 39,000 which included 9,000 with respect to fixed manufacturing overhead.

Requirement

(a) Prepare an operating profit statement for Playhouse for 2021 using;

(i) Absorption costing

(ii) Marginal/variable costing (15 marks)

(b) Referring to (a) above, reconcile the operating profit as shown in the absorption costing statement and the marginal costing statement. (3 marks)

(c) Advise the Managing Director as to the potential advantages and disadvantages of adopting marginal costing profit statements for internal profit statements compared to absorption costing and give your advice whether you believe marginal costing would be suitable for Playhouse Ltd. (7 marks) TOTAL 25 MARKS