1. **State the problem:** We have production and sales data for 100,000 units of product X, with sales of 94,000 units, production costs of 1,000,000, administrative overheads of 250,000, and sales revenue of 1,410,000. We are asked to prepare operating statements under both marginal costing and absorption costing principles. 2. **Understand the costs:** - Production costs = 1,000,000 - Administrative overheads = 250,000 (all fixed) - Sales = 1,410,000 - Units produced = 100,000 - Units sold = 94,000 - 75% of production costs are fixed, so fixed production costs = $1,000,000 \times 0.75 = 750,000$ - Variable production costs = $1,000,000 - 750,000 = 250,000$ 3. **Marginal Costing Operating Statement:** - Variable production cost per unit = $\frac{250,000}{100,000} = 2.5$ per unit - Variable production cost of units sold = $2.5 \times 94,000 = 235,000$ - Contribution = Sales - Variable costs = $1,410,000 - 235,000 = 1,175,000$ - Fixed costs = Fixed production costs + Fixed administrative overheads = $750,000 + 250,000 = 1,000,000$ - Operating profit = Contribution - Fixed costs = $1,175,000 - 1,000,000 = 175,000$ 4. **Absorption Costing Operating Statement:** - Fixed production cost per unit = $\frac{750,000}{100,000} = 7.5$ per unit - Total production cost per unit = variable cost per unit + fixed production cost per unit = $2.5 + 7.5 = 10$ - Cost of goods sold = $10 \times 94,000 = 940,000$ - Closing inventory (6,000 units) valued at $10 = $60,000$ - Sales = 1,410,000 - Administrative overheads = 250,000 (fixed) - Operating profit = Sales - Cost of goods sold - Administrative overheads = $1,410,000 - 940,000 - 250,000 = 220,000$ **Final Answers:** Marginal Costing Operating Profit = $175,000$ Absorption Costing Operating Profit = $220,000$