UPSA Ltd commenced business on 1st July 2020 as a manufacturer of bolt and nut at the Heavy Industrial Area for the use of mechanics. The standard cost of a bolt and nut is as follows:

GH Direct material 8 Direct labour 5 Variable production overhead 2 Fixed production overhead 5

20 The fixed production overhead figure has been calculated on the basis of a budgeted normal

output of 36,000 units per year. You are to assume that all the budgeted fixed expenses are incurred evenly over the year. July and August are to be taken as equal period months. Selling, distribution and administrative expenses are as follows:

Fixed GH1,200 per month

Variable 15% of sales value The selling price per unit is GH40 and the number of units produced and sold for the month of July and August, 2020 is as shown below:

July August Production 2,000 3,200 Sales 1,500 3,000

Required:

(a) Prepare profit statement for the months of July and August, 2020 using i. Marginal costing

ii. Absorption costing (b) Prepare a statement reconciling the profit or loss figures in your answer a(i) and a(ii).