1/3 75% + lo SECTION B APPLICATION QUESTION QI: Variable and Absorption Costing Total marks for this question: 25 marks [Suggested time: 35 minutes] Blackwood Pty Ltd.'s planned production for the current year was 20 000 units. This production level was achieved, but only 17 500 units were sold at $72 each. Other data are as follows: Direct materials used Direct labor cost incurred Fixed manufacturing overhead (actual & planned Variable manufacturing overhead (actual & planned) Fixed selling and administrative expenses Variable selling and administrative expenses Finished goods inventory. 1 January $145 000 80 000 105 000 42 000 TOO 000 16 800 None The company uses normal costing. There were no work in process inventories at the beginning or end of the year. REQUIRED: Show All workings 1. Calculate the cost per unit under variable costing system (2m) ii. absorption costing (3m) 2. Prepare an income statement for Blackwood for the current year using: 1. Variable costing 17m) 1. Absorption costing (6m) 3. Which costing method, absorption costing or variable costing, shows a higher operating profit? Why? (3m) 4. Which costing method, variable or absorption would you recommend to Blackwood's management Explain (4m) 59% 84F Rain: O L 0 FO