Dabwiso Limited uses a standard costing system. The standard cost per unit of
Product D is as follows:
K
Direct material
Direct labour
Production overheads: Variable
Fixed
Standard production cost
Standard selling price
The standard fixed production overhead absorption rate was based on a budgeted
activity of units.
During Period Production was units as planned but sales were only units. There was a total fixed production overhead variance of K adverse. All units were sold at K each.
There were no opening inventory at the beginning of the period.
Other costs incurred during the period were in relation to selling and distribution, and administration. These were as follows:
Variable Fixed
Selling and distribution of sales K
Administration K
Required:
a Prepare operating Profit statement for Period using:
i Absorption costing
ii Marginal
b Prepare a reconciliation of the difference between the ProfitLoss under absorption costing and under marginal costing and explain the reason for the difference.
