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ABC Ltd makes and sells a single product. The following data relate to periods 1 to 4. The company uses the FIFO method in valuing its inventory.

Variable manufacturing cost per unit	30.00
Selling price per unit	55.00
Fixed manufacturing cost per period	6 000.00

Normal activity is 500 units per period and production and sales for the four periods are as follows:

Period 1	Period 2	Period 3	Period 4
Sales	500	400	550	?
Production	500	500	450	500

There were no opening inventories at the start of period 1. There was no change in both variable manufacturing cost per unit and selling price per unit over the four periods. The direct costing operating statements for periods 1 to 4 are provided below.

Period 1	Period 2	Period 3	Period 4
N$	N$	N$	N$
Sales	27 500	22 000	30 250	24 750
Less: Cost of goods sold	(15 000)	(12 000)	(13 500)	(13 500)
Opening inventory	-	-	3 000	-
Add: Variable production cost	15 000	15 000	13 500	15 000
Available for sale	15 000	15 000	13 500	15 000
Less: Closing inventory	-	(3 000)	-	(1 500)
Contribution	12 500	10 000	13 750	11 250
Less: Fixed manufacturing costs	(6 000)	(6 000)	(6 000)	(6 000)
Profit for the period	6 500	4 000	7 750	5 250

REQUIRED:	MARKS
1.1.	What is the difference in the cost per unit between the direct costing method and absorption costing method? In your explanation, clearly spell out why the two methods end up with different profits when production exceeds sales and vice versa.	5
1.2.	Complete the following statements:
1.2.1.	When sales exceeds production and the inventory is reduced, absorption costing will report a profit.	1
1.2.2.	When production exceeds sales and there is an inventory buildup, absorption costing reports ..profit.	1
1.3.	Prepare the operating statements for periods 3 and 4, based on absorption costing principles.	8
1.4.	Reconcile the profits obtained in 1.3.	2
TOTAL MARKS	18

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