The following budgeted data relates to ALT Ltd. for the period ending December 3 1, 2020.
Production (units) 44,000
Sales (units) 52.000
Opening stock (units) 20,000
The company incurred material, labour and production and selling overheads per unit as follows:
Direct material $200 Variable production overheads
Direct labour $320 Variable selling and distribution
The annual fixed production overheads are budgeted to be $800,000 and the company expects to
produce 40,000 units of aprons each year. Overheads are absorbed on a per unit basis. Actual overheads are $860,000 per year. Actual fixed administration cost is $450,000 per year. The selling price per unit is $900.
Required:
(a) Prepare the marginal costing and the absorption costing income statements clearly showing the
difference in treatment of stock for the period ending December 31, 2020.
(b) Reconcile the income under both statements.
(c) Discuss three (3) ways in which variable costing difTers from absorption costing.