The Valley Fireworks Limited (Valley) manufactures special firework display kits to sell to responsible organisations only....

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The Valley Fireworks Limited ("Valley") manufactures special firework display kits to sell to responsible organisations only. The following information is taken from its budget for 2021: $ per unit $ per annum 500 Selling price Direct materials Direct labour 60 180 10 Variable production overhead Variable distribution overhead Fixed production overhead 20 96,000 144,000 Fixed administrative overhead The budget is assumed that opening and closing inventory are 20 kits and annual production equals to annual sales which are 1,200 kits. Its financial ended is on 31 December. The actual production and sales volumes for 2021 were: Units QI Q2 Q3 Q4 10 290 550 690 Opening inventory Production 300 300 200 300 Sales 20 40 60 980 Closing inventory 290 550 690 10 The variable costs per kit and the total fixed costs were as budget. Required: a. Prepare income statement of The Valley for each of the four quarters and the year of 2021 under the absorption costing method. (39 marks) b. Prepare income statement of The Valley for each of the four quarters and the year of 2021 under the variable costing method. (21 marks) c. Reconcile The Valley's operating income reported under absorption and variable costing for each quarter and the year of 2021. (10 marks) The Valley Fireworks Limited ("Valley") manufactures special firework display kits to sell to responsible organisations only. The following information is taken from its budget for 2021: $ per unit $ per annum 500 Selling price Direct materials Direct labour 60 180 10 Variable production overhead Variable distribution overhead Fixed production overhead 20 96,000 144,000 Fixed administrative overhead The budget is assumed that opening and closing inventory are 20 kits and annual production equals to annual sales which are 1,200 kits. Its financial ended is on 31 December. The actual production and sales volumes for 2021 were: Units QI Q2 Q3 Q4 10 290 550 690 Opening inventory Production 300 300 200 300 Sales 20 40 60 980 Closing inventory 290 550 690 10 The variable costs per kit and the total fixed costs were as budget. Required: a. Prepare income statement of The Valley for each of the four quarters and the year of 2021 under the absorption costing method. (39 marks) b. Prepare income statement of The Valley for each of the four quarters and the year of 2021 under the variable costing method. (21 marks) c. Reconcile The Valley's operating income reported under absorption and variable costing for each quarter and the year of 2021. (10 marks)

Answer rating: 100% (QA)

Valley Fireworks Workings for answer a Amount Note Fixed manufacturing overhead 9600000 A Units produced 120000 B Fixed manufacturing overhead per unit 8000 CAB Direct materials 6000 Direct labor 1800... View the full answer