QUESTION $16$

a$)$ The information below was taken from Pokoo Limited's budgets and standard costs for the first$-$half of the year $2023.$ Pokoo Limited is a manufacturer and retailer of a single product, F$.$

GHS per unit

Selling price $195\mathrm{.}00$

Direct material $55\mathrm{.}00$

Direct labour $39\mathrm{.}00$

Variable production overheads $26\mathrm{.}00$

The fixed production overheads incurred amount to GHS$742,500$ per quarter and are absorbed on a unit basis. The normal level of production is budgeted at $270,000$ units per annum.

Selling and distribution costs are:

Fixed GHS$35,000$ per month

Variable $4\%$ of the sales value

Administration costs are GHS$68,000$ per quarter.

For the first$-$half of $2023,$ the following production and sales trends of product F occurred:

Units

Production $80,000$

Sales $75,000$

There were closing inventories as at $31$st December $2022$ and are given below:

Units GHS

Marginal costing $5,000550,000$

Absorption costing $5,000605,000$

Required:

i$)$ Prepare the absorption costing and marginal costing income statements for the first$-$half of $2023.$

ii$)$ Reconcile the profit in $($i$)$ above

b$)$ Your recently engaged chief executive officer is getting ready to make a presentation on the benefits of maintaining clean budgets and using them as a template for organizational development.

Required:

You have been consulted as the management accountant of your company to identify any benefits of budgets preparation.