The following information relates to Years 1 and 2 of a company that produces a single product. Actual information for those years is as follows:
Year 1 Year 2
Variable production costs per unit Sh.22 Sh.27
Selling price per unit Sh.40 Sh.40
Fixed production overhead Sh.7,000 Sh.4,000
Fixed selling and distribution O.H/unit sold Shs.2 Sh. 2.20
Production (units) 2150 1400
Sales (Units) 1,800 1,750
The budgeted fixed production overhead for Years 1 and 2 was Shs. 5 700 and normal capacity was estimated to be 1 900 units.
Required
i. Prepare profit statements for Years 1 and 2 using marginal costing
ii. Prepare profit statements for Years 1 and 2 using absorption costing.
Reconcile the absorption profit to the marginal profit for both years.