Persie Limited is dedicated to the production and sale of highly fashionable sunglasses. The company’s budgeted monthly production is 3,000 units. Variable manufacturing costs are £16 per unit, while variable selling costs are £4 per unit. Fixed selling costs are £24,000 per month, while monthly fixed manufacturing costs are £30,000. Each pair of sunglasses sells for £40. The company values stock on a first-in-first-out basis.

Other data relating to July and August were as follows:

Required:
a Prepare an income statement for Persie Limited for both July and August using:
i marginal costing;
ii absorption costing.
b Present a calculation explaining the differences between the profits arising from the two methods.

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Number of units July August Opening inventory 400 100 Production 3,400 3,300 Sales 3,700 2,800 Closing inventory 100 600