Graham and Sara are partners in a clothes manufacturing firm. Graham manages menswear and Sara controls ladies fashions. They have just received last year’s accounts which are summarized below.

Naturally, Sara is pleased with the results but Graham is not so happy. On questioning their accountant he finds that the fixed production overheads have been apportioned on the basis of variable production costs. He wonders how the results would change if they were apportioned on different bases.

Tasks:1. Redraft the above statement if the fixed production overheads were apportioned on the basis of:a) Direct material cost;b) Direct labour cost;c) Variable overhead cost.2 What do your answers tell you about the absorption costing system?