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irene adler a friend of yours has been trading for...

Question: irene adler a friend of yours has been trading for...

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Irene Adler, a friend of yours, has been trading for the past two years producing and selling poisons. Although her accountant has drawn up accounts for her she feels they do not give an accurate picture of the business performance for decision-making purposes. She has asked you to look at his records and to draw up alternative profit and loss accounts for each of the past two years. The selling price for poisons has been E9 per unit for the past two years and the following information is available: 2017 Units 1,500 1,900 2018 Units 2,000 1,800 Sales Production Costs: Factory variable Factory fixed Administration fixed Selling variable 5,700 3,800 2,000 1,800 5,400 3,330 2,200 2,400 Irene Adler commenced business in 2017 with no stock and she uses FIFO for stock valuation purposes Required (a) Produce profit and loss accounts for 2017 and 2018 using absorption costing (b) Produce profit and loss accounts for 2017 and 2018 using variable costing (c) Assume now that if Irene Adler decided to spend £600 in 2018 on improved quality control procedures in the factory then sales volume for the year would rise by 5%. Explain which costing method would give the more useful measure to indicate the profitability of the decision. Make use of the data in this question to illustrate your explanation.

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