Nalpo Ltd manufactures and markets a small table that attaches to ladders. The following annual budget is based on 75,000 units made and sold:

Actual production figures for year 1 and year 2 were as follows:

Tasks:
You are required to:
1.  Prepare budgeted statements of profitability on the basis of:
a) absorption costing;
b) variable costing.
2.  Reconcile the difference in profit in the two statements produced for part 1.

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Total Per unit £ £ Sales revenue 375,000 5 Sales Production cost of sales: Variable 3 225,000 Fixed 75,000 300,000 75,000 Gross profit Selling and admin costs: Variable (10% of sales) 0.5 37,500 Fixed 30,000 67,500 7,500 Year 1 Year 2 Opening stock Production 15,000 85,000 70,000 80,000 Sales Closing stock 70,000 15,000 5,000