Xico Ltd produces and sells bricks. The manager of the company wants to assess the profitability of the company and he asked the accountant to prepare the profit and loss statement based on absorption and marginal costing. The accountant has the following information about production and sale:

Required
1. Calculate the cost per unit under variable (a) and absorption costing (b).
2. Calculate the cost per unit under absorption costing. Prepare the cost per unit each year under absorption costing.
3. Prepare profit or loss statements for three years under variable and absorption costing.
4. Calculate the profit differences each year and reconcile this with the fixed overhead of net inventory. Use absolute value.
5. Reconcile the net difference (closing inventory less opening inventory) between absorption and variable costing in the value of inventory for Years 2 and 3. Use absolute value.
6. Explain the difference in profits between Years 2 and 3.

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Units produced Units sold Costing information is as follows: Direct material Direct labour Variable production overhead Fixed cost Year 1 20,000 20,000 Production overheads** Selling and Administrative expenses* Selling price **Fixed production overhead varies according to production every year. *All selling and administrative expenses are fixed. Year 2 20,000 19,000 5.00 5.00 3.00 50,000 29,000 25.00 Year 3 21,000 22,000 per unit per unit per unit