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Dabwiso Limited uses a standard costing system. The standard cost per unit of Product...

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Accounting

Dabwiso Limited uses a standard costing system. The standard cost per unit of
Product D is as follows:
K
Direct material 2,500
Direct labour 1,200
Production overheads: Variable 600
Fixed 500
Standard production cost 4,800
Standard selling price 7,500
The standard fixed production overhead absorption rate was based on a budgeted
activity of 10,000 units.
During Period 4, Production was 10,000 units as planned but sales were only 8,000 units. There was a total fixed production overhead variance of K500000 adverse. All units were sold at K7,500 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 20% of sales K3000000
Administration K5000000
Required:
(a) Prepare operating Profit statement for Period 4 using:
(i) Absorption costing
(ii) Marginal
(b) Prepare a reconciliation of the difference between the Profit/Loss under absorption costing and under marginal costing and explain the reason for the difference.

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