Reference no: EM133028045

Question - The following data concerns the output of Encore Limited over a two-year period. 2017 2018 units Opening stock 20 000 35 000 Sales 225 000 210 000 Production 240 000 190 000 The Production of 200 000 units per annum is considered to be the normal activity level of the company. Fixed production overheads are budgeted at $400 000 per year. The company has estimated its total cost per unit for 2017 and 2018 as follows: Direct materials $2.00 Direct wages $3.00 Variable overheads $1.00 Fixed overheads $2.00 $8.00 Each unit of output is sold on the market for $25. Fixed selling and administration overheads amounted to $220 000 for the period and fixed overhead incurred was as planned.

Required -

(a) Prepare Marginal and Absorption costing statements for both years to determine the profit or loss for each period.

(b) Prepare a statement to reconcile the profit or loss determined using both systems

(c) Explain briefly the difference in the treatment of fixed production overheads under Marginal Costing and Absorption Costing.