Two Left Feet Ltd manufactures a single product, the Claud. The following figures relate to the Claud for a one-year period,
|
Activity level
|
|
50%
|
100%
|
|
Sales and productions (units)
|
|
400
|
800
|
|
|
|
|
|
|
|
|
Ksh.
|
Ksh.
|
|
Sales
|
|
8,000
|
16,000
|
|
Production costs:
|
Variable
|
3,200
|
6,400
|
|
|
Foxed
|
1,600
|
1,600
|
|
Sales and distribution costs:
|
Variable
|
1,600
|
3,200
|
|
|
Fixed
|
2,400
|
2,400
|
The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout the year, and actual fixed costs are the same as budgeted.
There were no stocks of Claud at the beginning of the year.
In the first quarter, 220 units were produced and 160 units sold.
Now:
Calculate the fixed production costs absorbed by Clauds in the first quarter if absorption costing is used,
Calculate the profit using absorption costing,
Calculate the profit using marginal costing,
Explain why there is a difference between the answers to (c) and (d).