Question

Pyjamask Ltd is a pioneer in the production of medical masks. The company provides the following information for the financial years 2019 and 2020 for the production of GN95 masks. 2019 Rs 2020 Rs Direct Materials per unit - Material X - Material Y 45 60 55 65 Direct wages per unit 10 10 Variable production overheads per unit 25 25 Sales commission per unit 2.50 1.50 Selling price 200 300 Actual fixed production overheads 3,100,000 3,400,000 Fixed administration and selling costs 950,000 1,000,000 Additional Information : a) Production and sales levels were as follows : 2019 2020 Production ( units) 120,000 140,000 Sales ( units) 130,000 130,000 b) Budgeted fixed production overheads amount to Rs 3,300,000 based on normal annual production level of 150, 000 units. c) Closing inventory of GN95 masks at 31 December 2018 was 20,000 units valued at a total cost of Rs 162 per unit. The company applies a FIFO basis of inventory valuation. d) The directors of Pyjamask Ltd implemented a massive advertising campaign which started in July 2019 and costing Rs 60,000 annually. This figure has not yet been included in the costs given in the table above.

(a) Prepare a Marginal Costing Income statement for the years 2019 and 2020. [12 marks] (b) Prepare an Absorption Costing Income statement for the years 2019 and 2020. [14 marks] (c) Prepare a reconciliation statement showing the difference between the absorption costing profit and the marginal costing profit for both 2019 and 2020.