Absorption costing versus marginal costing on how to be calculate given the foll

Feedco Limited reported an annual profit of K47,500,000 for the year ended 31 May 2020. The
company uses absorption costing. One product is manufactured, the Grower, which has the
following standard cost per unit.
K’000
Direct material (2kg at K5,000 per kg) 10
Direct labour (4 hours at K6,500 per hour) 26
Variable overheads (4 hours at K1,000 per hour) 4
Fixed overheads (4 hours at K3,000 per hour) 12
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The normal level of activity is 10,000 units although actual production was 11,500 units. Fixed
costs were as budgeted. Inventory levels at 1 June 2019 were 400 units and at the end of the
year were 600 units.
Required:
a. With the help of a profit statement, show how profit was calculated under absorption
costing. 9 marks
b. Prepare a marginal costing profit statement. 7 marks
c. Prepare a statement reconciling marginal costing with absorption costing profits.
3 marks
d. Explain why the profit reported under absorption costing was different from that
reported under marginal costing. 2 marks
e. Tell the management accountant of Feedco why it may be suitable to use marginal
costing instead of absorption costing. 4 marks