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A clothing manufacturer makes a specific brand of jeans which it sells at a standard price of $100 per pair. The manufacturer’s costs are as follows.
Standard variable production cost: $16 per pair
Total fixed production cost per month: $240,000 (10,000 pairs are planned to be produced per month) Total fixed non-production costs: $300,000 per month
In Month 1, when the opening inventory is 1,000 pairs, production of 10,000 pairs is planned and sales of 8,000 pairs are expected.
In Month 2, sales are planned to be 9,000 pairs and production is still 10,000 pairs.
Required
(a) What would be the net profit for Months 1 and 2 under
(i) Absorption costing
(ii) Marginal costing
(b) What comments could you make about the performance of this business?