Reference no: EM132562058

Shaheen ltd manufactures around 10,000 machines in a month. The break-up of unit cost is as under:

Direct material Rs.750

Direct labor Rs.300

Factory overhead Rs.750

Selling price of machine is Rs. 2,400 and one fifth of the Factory overheads are fixed. Sale and production of the period 1, 2 and 3 given below:

                                         Period 1             Period 2                  Period 3

Production (units)          10,000               8,000              11,000

Sales                           8,000                9,000              12,000

Production can be increase to 11,000 units without a corresponding increase in Fixed overhead.

Required:

Question a) Prepare separate operating statements on marginal costing and absorption costing for three periods.

Question b) Which method of costing is more preferable and why management use above methods