1. a) “product cost per unit” for Q1 and Q2 under the “absorption (full) costing” method (showing the fixed and variable parts of the cost) b) “product cost per unit” for Q1 and Q2 under “marginal (variable) costing” c) the fixed and variable parts of selling and administration overheads d) a “contribution statement” for Q1 and Q2 under marginal (variable) costing 2. a reconciliation of the “absorption costing” and the “marginal (variable) costing” net operating income figures for each quarter. Furthermore, Mr Hughes has asked you to produce a draft report (using appropriate numbers from the tables produced above), to explain to the CEO the results of Q2 in comparison with Q1. He is keen that your report should include: 3. a) a clear explanation of the characteristic of absorption costing that caused the drop in net operating income for the second quarter b) some suggestions of what Mr Hughes could have said to Mrs Harrison to explain the problem c) a discussion of the differences between “marginal (variable) costing” and “absorption (full) costing” d) identification of the advantages and any disadvantages of using the “marginal (variable) costing“method for internal reporting purposes
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