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The Mulenga & Co. Ltd is a single-product manufacturing company, which uses a marginal costing...

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Accounting

The Mulenga & Co. Ltd is a single-product manufacturing company, which uses a marginal costing system for internal management purposes. The year-end external reports are converted to absorption costs. Variances are charged to the cost of goods sold. The following data refers to the years ended 31 December 2020 and 2021: 2020 2021 K K Sales price per unit 80 90Standard marginal cost per unit: Direct materials 21 23 Direct Labour 19 22 Marginal factory overheads 8 10 Marginal selling and administrative expenses 2 3 Fixed factory overheads 170,000 180,000 Units Units Opening inventory 1,500 2,000 Closing inventory 2,000 1,500 Sales 20,000 25,000 The normal volume used for the purpose of absorption costing is 28,000 units in both years. REQUIRED: (a) Prepare profit and loss accounts for the year-ended 31 December 2021 on a marginal costing and on an absorption costing basis. (b) Discuss any differences which you may find between these two profit and loss accounts. (c) State what advantages and disadvantages attach to the marginal costing approach for internal management purpos

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