Hallelujah ltd manufactures a single products whis is packed and sold in well- designed final product called EXALT. The normal production level is represented in 40,000 unit of EXALT. production overhead absorption is based on normal production. The following data relates to the previous year:

Here are the profit statements and the reconciliation: Step 1: Calculate Unit Costs and Other Key Figures Variable Production Cost per unit: Direct Materials + Direct Labour + Variable Overhead N15 + N12 + N9 = N36 Fixed Production Overhead Absorption Rate: Budgeted Fixed OverheadNormal Production Level = N230,00040,000 units = N5.75 per unit Absorption Costing Unit Product Cost: Variable Production Cost per unit + Fixed Production Overhead per unit N36 + N5.75 = N41.75 Sales Revenue: Sales Units × Selling Price per unit 35,000 units × N75/unit = N2,625,000 Variable Selling and Administrative Costs: 12\% × Sales Income 0.12 × N2,625,000 = N315,000 Closing Stock Units: Opening Stock + Production - Sales 0 + 43,000 units - 35,000 units = 8,000 units --- a) Prepare Marginal Costing based profit statement lrr Hallelujah Ltd & & \\ Marginal Costing Profit Statement & & \\ For the year ended... & N & N \\ Sales (35,000 units @ N75) & & 2,625,000 \\ Less: Variable Cost of Sales & & \\ Opening Stock (0 units @ N36) & 0 & \\ Add: Variable Production Cost (43,000 units @ N36) & 1,548,000 & \\ Less: Closing Stock (8,000 units @ N36) & (288,000) & \\ Variable Cost of Sales & & (1,260,000) \\ Gross Contribution & & 1,365,000 \\ Less: Variable Selling and Administrative Costs & & \\ (12\% of Sales Income) & & (315,000) \\ Contribution Margin & & 1,050,000 \\ Less: Fixed Costs & & \\ Fixed Production Overhead & 230,000 & \\ Fixed Selling and Administrative Costs & 60,000 & \\ Total Fixed Costs & & (290,000) \\ Net Profit (Marginal Costing) & & N760,000 \\ --- b) A profit statement in absorption Costing model Fixed Production Overhead Absorbed: Production Units × Fixed Production Overhead per unit 43,000 units × N5.75/unit = N247,250 Over/Under Absorption: Absorbed Fixed Overhead - Actual Fixed Overhead N247,250 - N230,000 = N17,250 (Over-absorbed) lrr Hallelujah Ltd & & \\ Absorption Costing Profit Statement & & \\ For the year ended... & N & N \\ Sales (35,000 units @ N75) & & 2,625,000 \\ Less: Cost of Sales & & \\ Opening Stock (0 units @ N41.75) & 0 & \\ Add: Production Cost (43,000 units @ N41.75) & 1,795,250 & \\ Less: Closing Stock (8,000 units @ N41.75) & (334,000) & \\ Cost of Sales & & (1,461,250) \\ Gross Profit & & 1,163,750 \\ Add: Over-absorption of Fixed Production Overhead & & 17,250 \\ Adjusted Gross Profit & & 1,181,000 \\ Less: Selling and Administrative Costs & & \\ Fixed Selling and Administrative Costs & 60,000 & \\ Variable Selling and Administrative Costs & 315,000 & \\ Total Selling and Administrative Costs & & (375,000) \\ Net Profit (Absorption Costing) & & N806,000 \\ --- c) Account for the difference in reported profits The difference in reported profits between absorption costing and marginal costing is due to the treatment of fixed production overheads in inventory. Absorption Costing Profit: N806,000 Marginal Costing Profit: N760,000 Difference in Profit: N806,000 - N760,000 = N46,000 This difference can be reconciled by the change in inventory levels multiplied by the fixed production overhead rate per unit: Change in Inventory Units: Closing Stock Units - Opening Stock Units 8,000 units - 0 units = 8,000 units (increase) Fixed Production Overhead Rate per unit: N5.75 Difference due to Inventory Change: Change in Inventory Units × Fixed Production Overhead Rate per unit 8,000 units × N5.75/unit = N46,000 Since production (43,000 units) exceeded sales (35,000 units), inventory increased. Under absorption costing, a portion of fixed production overheads is capitalized into the closing inventory, leading to a higher profit compared to marginal costing, where all fixed production overheads are expensed in the period. Send me the next one 📸